The Federal Deposit Insurance Corporation took over the bank consequently selling it to the willing buyer, JPMorgan who was the only one who bid. It was sold at an astonishing $1.4 billion due to the government's failure to bail the bank out, bringing it to its knees (FDIC, 2008). Washington Mutual operations were Spear headed by greed and ambition, seen from the way it pushed its employees to ‘force’ customers to take loans.
The FDIC, however, resolved this issue by allowing JPMorgan to take over, further ensuring that changes were made. It acquired WaMu’s deposits and net assets which amounted to $188 billion and $240 billion respectively. These resolutions assured depositors, insured or otherwise, that the banking system will secure their interests are normal transactions should take place, in cases of future incidents.
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The employees were each expected to process at least ten loans daily, spending a maximum of thirty-five minutes on each loan. The company also crossed ethical boundaries by inflating the property values, have enticing clients to consider loans as the best option. They urged their sales representatives to seek out potential clients aggressively and engaged in risky transactions as they limited the requirements necessary for loan processing. This, in return, led to them suffering from losses due to defaulters.
As this bank was one of the largest, it relied too much on the real estate and mortgage industry and took too many risks. The day before the purchase of the bank by JPMorgan, the bank had seen a decline in its rating, a factor that led directly to its sale (FDIC, 2008). Home loans made fourteen percent of their transactions and the bank focused mainly on California, yet the housing industry was at its worst.
The bank also expanded too fast over a period of three years, with numerous branches; hence they made major miscalculations regarding the borrowers. During the collapse of the mortgage market in 2007, the bank had loans costing more than the value of the house, bringing significant losses. Another significant amount of loss was as a result of clients withdrawing about nine percent of their savings, due to the fall of other banks such as Lehman Brothers. This happened over the course of one week since the people panicked. When the government realized this, it started looking for buyers.
Conclusion
The Washington Mutual bank depended too much on the real estate business yet failed to take appropriate measures to ensure its sustainability. It prompted individuals to take loans by inflating market prices and offering good deals on loans while limiting the requirements necessary for loan application thus opening doors for everyone. This led to the company facing lawsuits and huge losses, especially in 2007 when their loss count was at $ 67 billion (FDIC, 2008).
References
Federal Deposit Insurance Corporation. (2008, November 25). Retrieved from https://www.fdic.gov/bank/individual/failed/wamu.html
