'The Reckoning' takes on Washington Mutual

If you missed it, Jim Rainey had a piece in Sunday's L.A. Times about that New York Times series "The Reckoning." L.A. Land readers may recall that we had posts  on the part entitled "White House Philosophy Stoked Mortgage Bonfire" and the subsequent White House apoplexy.

More interesting to me than a rehash of that dust-up was the latest installment of the series that ran Dec. 27 when I was off, "By Saying Yes, WaMu Built an Empire on Shaky Loans."

The lead:

SAN DIEGO — As a supervisor at a Washington Mutual mortgage processing center, John D. Parsons was accustomed to seeing baby sitters claiming salaries worthy of college presidents, and schoolteachers with incomes rivaling stockbrokers’. He rarely questioned them. A real estate frenzy was under way and WaMu, as his bank was known, was all about saying yes.

Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

I don't know how I can still be surprised by anything, but that one was a real head-shaker to me.

-- Lauren Beale

Thoughts? Comments?

Photo: The entrance to a Washington Mutual branch in Seattle in September. Credit: Ted S. Warren / Associated Press

WaMu moolah: CEO Alan Fishman may make $19 million for 17 days' work

As Congress argues over limits on executive pay, the New York Times reports that the chief executive of Washington Mutual, who was on the job just 17 days, is eligible for $19.1 million in compensation.

For short-time CEO Alan H. Fishman -- named to run the failing bank less than three weeks ago -- that would work out to $1.12 million per day (assuming he worked weekends). If he worked eight-hour days, it works out to $140,000 per hour.

Here's the kicker: Fishman didn't even broker the deal to find a buyer when WaMu failed and was seized by the government; the federal government reportedly arranged the purchase by JPMorgan Chase & Co., and closed the deal while Fishman was in midair, flying from New York to Seattle.

The New York Times on Fishman's potential compensation:

Mr. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus, according to an analysis by James F. Reda and Associates. WaMu was not immediately available for comment.

--Peter Viles

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Photo credit: Los Angeles Times

Why WaMu failed

You can make these things complicated, or you can make them simple. I'll make this one simple. Washington Mutual failed not because of a credit squeeze or a crisis of confidence or because it participated in esoteric investment vehicles.

It failed because it made thousands -- tens of thousands, maybe hundreds of thousands -- of really stupid decisions. The weight of those boneheaded moves sunk the bank.

Let me highlight one, courtesy of Bubble Info, a San Diego real estate blog I like. The blog shows a small, poorly maintained house marked with graffiti inside and out. A couch sits on the front patio. From Bubble Info:

WaMu refinanced this 1,500sf house in City Heights just over a year ago -- when it was obvious that the market was in trouble, and the smarter banks should have been reeling in their lending practices.

The owner paid $83,000 when he bought it from Home Savings in 1995.

WaMu loaned him $449,000 in June 2007.

It's now being offered as a short sale -- for $140,000!

Two cents: The loan was made in June 2007, after the subprime collapse. Sorry folks, but this is a form of corporate suicide.

--Peter Viles

Hat tip: Calculated Risk originally highlighted this story.

Your thoughts? Comments? E-mail story tips to Peter Viles or follow L.A. Land on Twitter.

Photo credits: Los Angeles Times (above), Bubble Info (below).

Too big to fail? WAMU at $2.01/share, reportedly seeks a buyer

Headlines: The Dow industrials lost 449 points and change today. We are in the eye of the storm.

Washington Mutual shares closed at $2.01, and the thrift is a source of increasing concern to the government, which, according to Alexis Glick of Fox Business News, "cannot afford to let this bank fail." More from Glick:

This morning a source tells me that Washington Mutual, the 6th largest bank and largest savings and loan bank in this country, cannot legally fail...

...We’re talking about risk to the depositor and to the Federal Home Loan Banks of $239 billion. Let me remind you that the FDIC or the Federal Deposit Insurance Corporation has $45 billion. We are talking about a bank with $181 billion of deposits. They cannot afford to let this bank fail.

The New York Times reports WAMU has hired Goldman Sachs to find a buyer:

Washington Mutual, the struggling savings and loan, has been working on several efforts to save itself, including a potential sale, people briefed on the matter said Wednesday.

... Goldman Sachs, which Washington Mutual has hired, started the auction several days ago, these people said. Among the potential bidders that Goldman has talked to are Wells Fargo, JPMorgan Chase and HSBC.

Your thoughts? Comments? An update: your blogger has discovered Twitter, and I encourage you to join me, or perhaps even follow me. I'm hoping it's a new way for me to learn more about the L.A. real estate market -- directly from you. Here's my Twitter feed.

Hat tip: Michael Snyder, via e-mail.

-- Peter Viles

Photo credit: Getty Images

B of A singing homebuilder blues; WAMU free-falling

News item from Bloomberg: "Bank of America, the biggest U.S. consumer bank, said credit weakness is spreading to commercial borrowers from residential customers and loan losses probably will deepen in the third quarter."

Calculated Risk has the B of A presentation and webcast. More from Bloomberg:

Home builders unable to repay their loans are contributing to deterioration among commercial borrowers, said Brian Moynihan, head of the global corporate and investment banking unit, at a New York conference today. More than half the Charlotte, North Carolina-based bank's $13.4 billion in loans to builders are considered troubled, 19 percent are not paying interest and losses are likely to mount, Moynihan said.

Also: Washington Mutual shares are still free-falling. Shares were down 22%, at $2.59, at 10:50 a.m. LA time this morning. That's an 18-year low if you are keeping track. WAMU shares lost 20% yesterday.

Math quiz: If a stock declines 20% every day, how long does it take to get to zero? Answer: It never gets there, but it gets awfully cheap.

--Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles
Photo Credit: Getty Images

Hiding behind Lehman: a WAMU freefall

The Wall Street headline today is the Lehman Bros. meltdown, but there is another meltdown-in-progress worth noting: What Calculated Risk calls the "Cliff Diving" by Washintgon Mutual shares.

WAMU shares fell 20% today to close at $3.30, which marks a 92% decline from the stock's 52-week high of $39.25. This is one troubled institution: The CEO was pushed out over the weekend, and today Standard & Poor's lowered its outlook on the company to negative from stable.

The problem? Through aggressive lending, WAMU bought the housing bubble, still owns it, and can't sell it. From MarketWatch:

Of WaMu's $52 billion in Option-ARM loans, $33 billion are tied to properties in Florida and California. What's more, more than 6% of the company's Option-ARM loans are classified as "non-performing" -- or loans whose borrowers are in one stage of default or another -- a measure that rose quickly during WaMu's first and second quarters.            

WaMu also holds $16 billion in subprime loans and another $60 billion in home equity loans -- two other types of loss-riddled mortgages. WaMu's executives provided tepid assurances in July that delinquencies among those two loan books are finally slowing.

That's $128 billion in potentially risky lending. That's a lot of, ahem, Risky Business.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles.

Photo Credit: A.P.

WaMu blues: Stock hits 52-week low

Just a quickie: Washington Mutual shares fell as low as $5.75 today, a 52-week low, on worries that the Fed is done cutting rates and WaMu faces further loan write-offs.

Today's low of $5.75 per share marks an 87% decline from the stock's 52-week high of $44.19, according to CNBC.com stats. Lemme say that again: an 87% decline in market value.

Analysis: This is a company that would otherwise be ripe for a takeover. The problem is, buyers are scarce in today's corporate world. The two relatively strong hands in the game -- Bank of America and JPMorgan Chase -- have their hands full.  There is probably a foreign buyer out there, but there are probably numerous members of Congress who wouldn't like the idea of a foreign buyer of America's largest thrift.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo credit: Bloomberg News