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Washington Mutual Inc. |
Washington Mutual Bank (WAMU) shareholders are uniting to challenge
the actions of the FDIC (the Federal Deposit Insurance Corporation)
and JPM (JP Morgan) prior to the seizure of Washington Mutual bank.
Shareholders contend: 1) that these actions were unjustified 2) that
they were unethical 3) that Washington Mutual Bank was not failing.
As evidence of our claims, reports now surfacing indicate the
liquidity of the bank was much better than the public was led to
believe; by most accounts, the bank had enough funds to cover the
withdrawals by depositors. Washington Mutual executives knew these
facts; however, their claims made days before the seizure that the
bank was in good health were ignored. We the concerned shareholders
of WAMU contend that the FDIC was not right in doing so and has caused
irreparable harm to the WAMU stockholders, to the banking community
and to the markets in general. As a result of this action,
shareholders of thousands of companies throughout the world have lost
trillions of dollars since.
The FDIC seized Washington Mutual Bank saying there had been a bank
run amounting to 16.7 billion dollars in 10 days. The reason this
money was withdrawn from the bank is unknown. The FDIC saw money
moving out of larger accounts and assumed a run was in progress. Just
2 weeks before the FDIC seized the bank WAMU had worked out a solid
business plan with the OTC (Office of Thrift Supervision). At the
time of seizure, WAMU had access to $50 billion in assets: sufficient
liquidity to handle all their obligations. The situation, however,
seemed different to the FDIC, whose reserves were low as a result of
not collecting insurance premiums from 1996-2006 and the bank failures
in the previous weeks. Appointed officials at the FDIC were concerned
that if the failure of Washington Mutual was followed by other bank
failures as well, the agency would not be able to handle the
situation. Despite this concern, the FDIC had the ability to borrow
$30 billion from the Federal Reserve; however, for some reason it did
not do so. The FDIC’s move was more about protecting the federal
deposit insurance company than about protecting the insured.
In short, the FDIC acted prematurely, behind closed doors. The
Washington Mutual Executives had no prior knowledge of the FDIC’s
plan. In fact, at the time of the seizure WAMU was in the midst of
sale negotiations with several other banks, and had been given no
deadline by the FDIC to find a buyer. Despite WAMU’s good-faith
efforts to find buyers, banks which were contemplating buying
Washington Mutual had been notified by the FDIC that the FDIC was to
auction off the bank, again without WAMU’s knowledge. This FDIC
action prevented a sale from being made. Even worse for WAMU, behind
closed doors, the FDIC was offering prospective buyers a much sweeter
deal than the ones WAMU was negotiating. The FDIC arranged for
JPMorgan to purchase the $300 billion dollar corporation for the
bargain price of 1.9.
The FDIC needs to be held accountable for its short sighted action
which has caused havoc throughout world markets. The FDIC had many
options in the event that WAMU faltered. The option chosen, seizing
the bank and selling it overnight for a miniscule fraction of its
value in a clandestine deal with JPMorgan, was the worst of any
options they had. Did the FDIC act appropriately? Most shareholders
don’t think so and they want the FDIC to answer for that.
The result of the FDIC’s hasty and secretive action was that the
shareholders of Washington Mutual Bank lost billions of dollars.
Shareholder portfolios were emptied overnight - because of collusion
between the FDIC and JPM in weeks leading up to the seizure. Now,
shareholders seek redress.
Never has the law been applied with such disregard for its intention.
Government regulators, supposedly the ones responsible for protecting
us, circulated insider information about the bank to its competitors
and precipitated a catastrophic collapse whose repercussions are still
being felt today.
Coincidentally, JPMorgan has been the institution which has profited
handsomely from these failures. Coincidentally, the former head of
the SEC (Securities and Exchange Commission) whose role is to oversee
stock trading, works at JPMorgan, and this week was accused of private
conversation causing difficulties that may have resulted in another
recent bank failure, that of Bear Stearns. JPMorgan has also been
accused of interfering in Lehman Brothers’ access to $5 billion
dollars which helped catapult their demise. And the company has been
accused of denying WAMU access to $5 billion dollars they had on
deposit with JPMorgan.
Is this coincidence? We think not. We demand the FBI and the
legislature thoroughly investigate the relationships and actions of
the OTS , the FDIC, the SEC and JPMorgan management. We do understand
that the government is currently investigating Washington Mutual, but
we contend these other institutions need to be investigated as well.
One of our goals is that the assets or at least the asset value of
Washington Mutual be returned to the stockholders, just as they were
in the lawsuit filed by First City Bancorporation in 1992. In that
suit, (1993) the FDIC was forced by the courts to return 145 million
dollars to creditors and depositors, after the seizure of that bank
and its assets. The same situation happened here. Consequently, our
members feel that there seems to be legal precedent for holding the
FDIC accountable for their actions. Holding the FDIC accountable is
exactly what the members of this organization intend to do.
On Jul 10, 2:28 am, matt <m...@matthewmurphy.net> wrote:
> > Why is FDIC not being held accountable for its failure in supervision
> > but praised for its efficiency in shutting down banks? Why is FDIC
> > practically using our tax money to share losses and wiping out
> > shareholders because it failed its job to supervise properly?
> > "Regulators shut down the John Warner Bank of Clinton, Ill.; the First
> > State Bank of Winchester in Winchester, Ill.; the Rock River Bank of
> > Oregon, Ill.; the Elizabeth State Bank of Elizabeth, Ill.; the First
> > National Bank of Danville in Danville, Ill.; the Founders Bank of
> > Worth, Ill.; and Millennium State Bank of Texas, based in Dallas."http://www.nytimes.com/2009/07/03/business/03banks.html?ref=business
> > "The FDIC and The First National Bank of Beardstown entered into a
> > loss-share transaction on approximately $20 million of The First State
> > Bank of Winchester's assets."http://www.istockanalyst.com/article/viewiStockNews/articleid/3330752
> > All these banks except for First National Bank fell under FDIC
> > supervision (Class NM)
> > *NM = commercial bank, state charter and Fed nonmember, supervised by
> > the FDIC*http://www2.fdic.gov/idasp/main.asp
> The FDIC is only the *backup* regulator for state-chartered Federal
> Reserve Nonmember (NM) banks. It generally cannot take direct action
> against a state-chartered institution except in the most egregious of
> circumstances, or in the case of direct violation of one of the FDIC-
> enforced consumer protection laws (i.e., the FTC Act).
> > This is the first page of the latest failed bank list on the FDIC
> > website; 11 out of 20 were under its supervision.http://www.fdic.gov/bank/individual/failed/banklist.html
> > Mirae Bank (NM) June 26, 2009
> > MetroPacific Bank (NM)
> > Horizon Bank (NM)
> > Neighborhood Community Bank
> > Community Bank of West Georgia
> > First National Bank of Anthony
> > Cooperative Bank (NM)
> > Southern Community Bank (NM)
> > Bank of Lincolnwood (NM)
> > Citizens National Bank
> > Strategic Capital Bank (NM)
> > BankUnited, FSB
> > Westsound Bank (NM)
> > America West Bank (NM)
> > Citizens Community Bank (NM)
> > Silverton Bank, NA
> > First Bank of Idaho
> > First Bank of Beverly Hills (NM)
> > Michigan Heritage Bank
> > American Southern Bank (NM) April 24, 2009
> The overwhelming majority of our nation's banks are state-chartered
> Fed nonmember banks. Even if 70% of failures fell under the NM
> classification, that would be relatively low given the overall
> prevalence of the NM charter class in the market. By far the largest
> failure and assistance liabilities for the FDIC (the five Citigroup-
> linked banks/thrifts, Bank of America, IndyMac, BankUnited, ...) were
> all either national banks regulated by OCC, or thrifts regulated by
> OTS. The state regulators have actually done a far better job than
> OTS, OCC, etc., at enforcing the capital rules.
> > Why would anyone want to buy any bank? As long as our regulators don't
> > follow rules nobody would want to deal with the government. Sheila
> > Bair now says these private investors must maintain a tier I capital
> > ratio of at least 15% but back when Wamu had a tier I capital ratio of
> > 8.4% (yes not as high as 15% but a pretty good number at that time)
> > she still seized it.
> The FDIC does not seize banks, nor decide which ones are open and
> which ones are closed. The FDIC can only accept or decline
> appointment as receiver for banks that have already been closed by
> their primary regulator. The agency that closed WaMu was the Office
> of Thrift Supervision, not the FDIC.
> Furthermore, the chief objective of the banking regulators is *NOT* to
> minimize the number of failures, but rather to minimize the total cost
> to the DIF (and therefore the risk to the credit of the United
> States). WaMu was closed not because its capital was insufficient,
> but because it was losing deposits at such a rate that its capital
> would have *become* insufficient in a matter of days. With WaMu
> losing $10 billion a month in deposit base and the run accelerating as
> the damage was tallied, OTS recognized that the bank had lost
> depositor confidence and would run out of capital, causing a huge loss
> to the Deposit Insurance Fund. WaMu, rather than being simply
> undercapitalized, was operating in an "unsound condition", hence its
> closure.
> > "The FDIC today released a memorandum designed to provide guidlines to
> > private equity firms looking to own banks. A summary is (emphasis
> > mine):
> > Pursuant to the proposed policy statement, the Investors’ holding
> > company will be expected to provide for the capital support of the
> > acquired or de novo depository institution through a strong initial
> > capital contribution – maintaining a minimum 15 percent Tier 1
> > leverage ratio for a period of at least 3 years. Staff believes that
> > up-front capital protection for the depository institution would
> > provide an effective cushion that could have a lasting impact...
> > Now, some might recall that banks were judged on their Tier 1 ratio
> > once upon a time. Regulators then swung to tangible common equity and
> > settled into tangible capital. But now that the danger has passed and
> > all is better (right?), the FDIC swings back to tier 1 and well
> > capitalized (recall that WaMu and WB were "well capitalized when they
> > were defacto siezed)."http://seekingalpha.com/instablog/153397-boneyard/11078-fdic-shepardi...
> WB was never actually seized; OCC didn't close the bank, nor did it
> place it in conservatorship. The FDIC had a plan for an Open Bank
> Assistance & Acquisition (A/A) transaction with Citigroup, but it
> deliberately allowed Wachovia to remain open. Wachovia ended up being
> bought in an unassisted sale by Wells Fargo and Co., hence no federal
> intervention.
> As noted above, WaMu was closed because of a crippling ($300 million
> per day) deposit run, not a capital problem.
> > FDIC now has the power to borrow up to $500 billion, and is that not
> > tax money?
> The FDIC borrowing authority is only $100 billion, not $500 billion.
> Chris Dodd proposed the $500 billion number when the health of
> Citigroup, Bank of America, et al. was in question, but it didn't end
> up going that high in the final legislation.
> Treasury borrowing is in fact borrowing tax dollars. However, the
> FDIC must not only pay back the principal of what it borrows, but also
> the interest (i.e., the borrowing cost). The taxpayer doesn't
> actually lose anything by way of the FDIC's borrowing, which is what
> happened when the FDIC borrowed money for the RTC's wind down in 1991.
> > Bair's original proposal was to collect only $27 billion
> > from special assessment fees this year so how long do you think it
> > will take FDIC to pay back whatever it borrows? Its DIF ratio
> > continues to plummet; as of last quarter, it was at 0.27%. That means
> > for every $100 you deposit you can really only get $0.27 back.
> I don't think you understand how insurance systems work. The idea is
> that you take money from all the banks, and insure them all against
> failure. You can't collect a dollar for every dollar of deposits, or
> you'd have no deposits. So, what you do is, you collect the statutory
> 1.5% of those deposits and then you basically pray that the banks that
> fail at any one time hold less than 1.5% of deposits. Typically, it's
> actually a sane bet, as large banks are unlikely to be allowed to fail
> and even small banks don't routinely fail.
> Even in a good environment, when the DIF is at its statutory maximum
> and the banks pay nothing for deposit insurance, only $1.50 per $100
> of deposits is backed by actual cash in the insurance fund.
> > Wait, did I forget to mention FDIC is also backing over $300 billion
> > of bank bonds for Goldman Sachs etc?
> TLGP backing is virtually risk free for the FDIC; the odds that a
> large bank like Goldman Sachs would:
> A) fail; and
> B) not be rescued by the Federal Reserve's printing press
> are essentially zero, as most of the big banks have been explicitly
> labeled too big to fail.
> Also, the FDIC is paid a fee for its guarantee, just as it is for
> deposit insurance.
> > Its great GS is paying back TARP
> > but why should it give out record bonus this year when the US
> > government is still backing its bonds?
> TLGP backing of banks' debt is due to end in a few months. One of the
> conditions for exiting TARP (and therefore paying unregulated bonuses)
> was that the bank issue unbacked debt without an FDIC guarantee. Once
> the FDIC guarantees on existing debt expire at maturity, the bank will
> have been completely re-privatized.- Hide quoted text -
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