A fantastic piece from the Puget Sound Business Journal’s Kirsten Grind. It documents WaMu’s final months, noting that the bank suffered two large bank runs that management successfully hid from the press at the time. See chart below.
[On a related note: Have you ever wondered why WaMu's failure -- $307 billion of assets, $188 billion of deposits -- never cost the Deposit Insurance Fund a dime? One reason was that FDIC moved relatively quickly. More importantly, losses on assets were forced onto shareholders and creditors. Common and preferred equity was wiped out, as were subordinated debtholders. Reader Andrew points out in the comments that there was a large buffer of capital (debt and equity) to absorb losses ahead of depositors. (More on that from Kevin LaCroix)]
(Click image to enlarge in new window)
Grind also includes this interesting tidbit:
Each day, Brinks Security trucks pulled up to replenish WaMu ATMs across the country. Before the crisis, the trucks delivered about $30 million in cash a day nationwide, Freilinger said. During the September bank run, they delivered as much as $250 million a day.
WaMu was certainly seeing larger deposit outflows than most, but plenty of folks in “healthy” banks were pulling money out to stuff in their mattress. I wonder how much cash was being delivered to ATMs and bank branches nationwide last September and October…
“More importantly, losses on assets were forced onto shareholders and creditors. Common and preferred equity was wiped out, as were subordinated debtholders.”
I would like to offer you a chance to provide an example of an FDIC assisted transaction, since 1992, where this statement is not true.
Ironically, the FDIC was able to avoid the hit because of the high volume of non depositor debt. The FDIC has braod abilities to divorce these items from the remainder of the bank. Since deposits only made up about 60% of the funding, even impaired asset values were more than sufficient to cover the deposits. Plus JP ate the majority of the asset writedowns, likely as part of the agreement for getting WaMu for a lowball price.
Not suggesting this was abnormal Andrew….just got lots of questions on it. Your point that this time ’round there was a significant debt/equity buffer in front of deposits is helpful context.
Name (required)
Email (will not be published) (required)
Website
Anti-spam word: (Required)* To prove you're a person (not a spam script), type the security word shown in the picture. Click on the picture to hear an audio file of the word.
Reuters.com: Help and Contact Us | Advertise With Us | Mobile | Newsletters | RSS | Labs | Journalism Handbook | Archive | Site Index | Video Index
Thomson Reuters Corporate: Copyright | Disclaimer | Privacy | Professional Products | Professional Products Support | About Thomson Reuters | Careers
International Editions: Africa | Arabic | Argentina | Brazil | Canada | China | France | Germany | India | Italy | Japan | Latin America | Mexico | Russia | Spain | United Kingdom | United States
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.
Read Full Article »