Monday, September 29, 2008

The Rise and Fall of WaMu

On the post Shorts Say WooHoo!, I deep linked a graph from showing the role FtDs played in the final days of Washington Mutual. It was heartbreaking to see a company that played an important role in many lifes go up in a puff of questionable paper.

Truth be told, I was actually more disheartened by the rise of Washington Mutual from a wonderful little local mutual fund to a banking behemoth. I extracted the list of WaMu acquistions from Wikipedia.
  • Old Stone Bank of Washington, FSB, Rhode Island, 1990
  • Frontier Federal Savings Association, Washington, 1990
  • Williamsburg Federal Savings Association, Utah, 1990
  • Vancouver Federal Savings Bank, Washington, 1991
  • CrossLand Savings FSB, Utah, 1991
  • Sound Savings & Loan Association, Washington, 1991
  • Great Northwest Bank, Washington, 1992
  • Pioneer Savings Bank, Washington, 1993
  • Pacific First Bank, Ontario, 1993
  • Far West Federal Savings Bank, Oregon, 1994
  • Summit Savings Bank, Washington, 1994
  • Olympus Bank FSB, Utah, 1995
  • Enterprise Bank, Washington, 1995
  • Western Bank, Oregon, 1996
  • Utah Federal Savings Bank, 1996
  • Keystone Holdings, Inc. (American Savings Bank), California, 1996
  • United Western Financial Group, Inc., Utah, 1997
  • Great Western Bank, 1997
  • H. F. Ahmanson & Co. (Home Savings of America), California, 1998
  • Industrial Bank, California, 1998
  • Long Beach Financial Corp., California, 1999
  • Alta Residential Mortgage Trust, California, 2000
  • PNC Mortgage, Illinois, 2001
  • Bank United Corp., Texas, 2001
  • Fleet Mortgage Corp., South Carolina, 2001
  • Dime Bancorp, Inc., New York, 2002
  • HomeSide Lending, Inc., Florida, a unit of National Australia Bank, 2002
  • Providian Financial Corporation, California, 2005
  • Commercial Capital Bancorp, California, 2006

Quite frankly, I was more disheartened by the slow played drama of all these wonderful little banks being vacuumed up by a corporate giant, than in watching the thunderous collapse of the corporate giant.

Mergers are not one sided. Yes, some mergers are the result of hostile take overs. My understanding in the Washington Mutual expansion is that many of the small banks were seeking protection of a larger company. Regulations like the Community Re-investment Act (established in 1977 and greatly expanded in 1995), put tremendous regulatory pressures on local lending institution. Community organizers were pressuring local banks into bad loans.

As school yard wimps know, the solution to a school yard bully is a big brother.

My take is that the small banks saw the writing on the wall. They saw that the changing regulations and attitudes towards mortgages made their small business plans tenuous. So, the solution is to seek protection in a bigger, politically powerful firm.

We saw a similar merger strategy in the WorldCom fiasco. A large number of marginal companies merged creating the semblance of growth. Eventually the company collapsed.

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