Rizal Technological University

Boni Avenue, Mandaluyong City

Graduate School

CASE ANALYSIS: WASHINGTON MUTUAL

Submitted By:
Daniella Jae E. De Guzman

Submitted To:
Dr. Kathryn Tria
MBA 275: Managerial Economics

December 2022
I. Time Frame
The largest savings and loan organization in the United States up to its demise in
2008 was Washington Mutual, or WaMu, the holding company for savings banks.
It began as a two-person business in Seattle in 1889 and eventually expanded to
become the country's largest savings loan. Following the tragic fire that destroyed Seattle
in 1889, the Washington National Building Loan and Investment Association was
founded with the goal of aiding in the city's reconstruction. The great Seattle fire, which
destroyed 29 square blocks of downtown Seattle, was ignited by a glue pot that
overflowed in a carpentry shop in downtown Seattle in June 1889. On February 10, 1890,
the newly established corporation issued its first home mortgage loan on the West Coast.
On June 25th, 1908, it adopted the name Washington Savings and Loan Association.
They modeled themselves after the east coast's mutual savings banks, which were already
well-established. They introduced some significant modifications, such as the removal of
membership criteria, and they also granted their customers the freedom to withdraw
deposits whenever they wanted.
It had nearly seven times as many accounts by 1913, making it the biggest savings
institution in the state.
It adopts the name Washington Mutual Savings Bank on September 12, 1917. On the
west side of the Mississippi, it was the first cooperative savings bank.
In 1923, it started the school savings program in which school children all over
Seattle saved their pennies and nickels brought them to school and then deposited them in
Washington Mutual at a 5% interest rate. The program was an immediate and massive
success within a month half the school children in Seattle more than 21,000 had open
accounts, after 6 years one million dollars was on deposit.
The great depression arrived in 1929 and caused the demise of many banks around
the country.
In 1941, it acquired Coolidge Mutual Savings Bank in Seattle. Washington Mutual
thrived during the World War II and sold just short of 30 million dollars in war bonds. It
took Washington Mutual until 1964 to expand outside of Seattle when it acquired
Spokane citizen mutual savings bank which had branches in Spokane and Pullman.
By 1976, WaMu offered the new innovative pay bills by phone service. The bank was
also an early developer of the cash machine which later evolved into the ATM.
Washington Mutual's machine was called the exchange. Also, in 1976, they also
introduced a different kind of innovation, the step rate loan in which the rate starts low on
the first year and gradually rises for the next six years as it resembled in some respects
what would later be called the adjustable-rate mortgage.
A recession and tight money supply forced Washington Mutual to take the extreme
step in October of 1979 of granting no more home loans. The bank wasn’t able to resume
lending on a limited basis until 1980. The bank suffered big losses in 1981 and 1982. In
1983, WaMu made the decision to go public. It converted from a mutual bank to a
savings bank owned by holders of capital stock. The stock sale helped the bank to recover
from its losses.
The bank embarked on an aggressive expansion strategy in 1982 by acquiring the
Northwest’s oldest brokerage securities firm which is the Murphy Farm Inc., a firm
founded in Spokane in 1888 and its sister company composite research and management.
Soon WaMu was doing business in number of new areas including insurance, travel
services, real estate partnerships, junk bonds and commercial construction loans. The
bank’s new motto was the bank that’s more than a bank.
In 1989, its 100th anniversary, the company built a dramatic new addition to the
Seattle Skyline, the Washington Mutual tower. The company began purchasing other
Northwest banks at an average of two per year. It leapfrogged from 84 branches in 1991
to 248 in 1995. Then it began to expand throughout the entire west purchasing banks in
Oregon and Utah. The biggest acquisition of all came in 1996 when it acquired
California's American Savings Bank and its 158 branches. WaMu immediately became
the third largest savings and loan in the nation.
In 2000’s powered by a boom in housing prices and subsequent boom home loans.
Washington Mutual expanded throughout the nation. It became the country’s largest
mortgage originator and the country’s largest savings and loan bank. The growth came in
part from subprime loans which was aggressively marketed to people with bad credit
known as subprime borrowers. It also came from a loan Washington mutual called the
option arm adjustable-rate mortgage. It was promoted as all the loan you’ll ever need
because of its flexibility. Customers could choose from among a variety of rates and
payment plans. Many opted for the minimum payments which were not always enough to
pay even the interest.
By 2006, as interest rates went up the defaults grew. By 2007, the housing bubble had
burst and the subprime lending crisis was making headlines around the country. WaMu
was in trouble, it drastically curtailed its subprime lending and then in June 2008, the
bank stopped offering option arms. WaMu’s historic collapse the bank had to raise
outside cash on a private equity firm to TPG Capital then September 2008, nervous
depositors spooked by the government takeover Freddie Mac and Fannie Mae embarked
on another run-on Washington Mutual. Depositors quietly and methodically withdrew
16.7 billion dollars in deposits in just over a week. This created what the FDIC called
severe liquidity pressure in other words; the bank ran out of money. WaMu’s proud and
long-standing claim remained intact no depositor ever lost a dime but stockholders and
bondholders weren’t too fortunate because they lost everything.
II. Perspective
A. Top Management
Washington Mutual aimed to serve both retail and business customers as a
financial superstore. In an effort to boost its slow growth, WaMu purchased Long
Beach, which offered mortgages to borrowers with bad credit. WaMu purchased
Providian, a provider of credit cards to what might be referred to as subprime
customers. With the help of a mathematical model, Providian offered credit cards to
clients who could afford the monthly fees but not the high interest rate on the total
amount owed. They distributed cards to less-than-prime consumers who, under
normal conditions, would not be qualified for debt in the event of sluggish sales.
After receiving numerous accusations of misleading and overcharging its consumers,
Providian sold to WaMu. They decided to enter the credit card market because it was
experiencing a slowdown in its home loan business and hoped to acquire all 9.5
million Providian clients at once. They also used its base of retail deposits to try to
cut the cost of funds. WaMu was unable to keep up as these high-risk loans started to
default. In effect, WaMu had spent all the billions of dollars it had acquired from
outside investors that spring – not on expanding the company, but on filling the hole
it had made for itself. In the end, they failed to balance the growth and prudence.

B. Consultant
The glory years of Washington Mutual and its formerly adored CEO, Kerry Killinger,
coincided with the financial services boom of the 1990s, which included a strong
push for banks and thrifts to expand or be acquired, and the early 2000s housing
mania. Despite the fact that both were unsustainable, they were essential to WaMu's
rising stock price.
As the housing market boomed, Washington Mutual was a pioneer in
transforming mortgages from a cautious process involving a loan officer into a
production line supplying Wall Street's insatiable appetite for quick profits. WaMu
amassed billions of dollars in high-risk mortgages as standards were eased, including
the infamous "liar's loans" where providing accurate information about a customer's
financial status was, hmm, optional. WaMu's and other factories' production lines
fueled the biggest suburban sprawl boom in history since home construction seemed
to be the final unstoppable industry in the United States. With their rental properties,
it fueled speculation among even low-wage workers and, particularly, Wall Street,
where the mortgages were repackaged and sold to investors. Everyone appeared to be
growing rich and everything seemed fantastic, but only while home values continued
to rise.
The boom was actually only a once-in-a-lifetime occurrence caused by the
Federal Reserve, a bubble that formed when the cost of borrowing outpaced the
increase in asset value. Even after it was obvious that a housing bubble was
developing and had burst, WaMu kept making a lot of risky house loans. Killinger is
 cited as saying in a speech from September 2007 that this "may be one of the best
periods I've ever seen for taking on new loans into our portfolio.” In order to stabilize
the credit and stock markets, which were being ravaged by growing mortgage losses,
the Fed was compelled to implement a surprise rate decrease a month prior. The
market was already degrading so quickly that difficulty was extending beyond
subprime loans, despite executives' bets that they would buy up higher-quality
mortgages and increase their market dominance. WaMu, like many homes it lent
money to, was unable to say no and was unaware of its financial limitations. But
unlike homeowners, it was headed by highly compensated professionals who
continued to hold fast to those well-known final words: The figures made sense. The
actions of the gambling addict, who continues to believe he may recover irreparable
losses, were worse.
According to no less a figurehead than Hugh McColl Jr., who turned a mediocre
North Carolina business into Bank of America, expanding can be a company's
toughest and most perilous challenge. Businesses may become sidetracked.
Technology and cultural integration are challenging. And prospective purchases
might turn out to be duds. Washington Mutual significantly expanded through
acquisitions, some of which were successfully handled but a couple of which proved
more difficult, such its 2001 acquisition of Dime Bancorp. The loan portfolio and,
more importantly, the branch network expanded quickly and irresponsibly. It's
possible that Washington Mutual grew to the point where it was no longer able to
function as a typical savings and loan due to its reliance on consumer accounts and
house loans.
The mistakes made by Killinger and his management group are well known.
Equal responsibility must be shared by Washington Mutual's board, which has been
characterized in some national media as Killinger's local yokel friends. In many
American firms, it is still all too usual for the board to be controlled by the
charismatic CEO. The majority of CEOs in America simultaneously serve as the
board's chairman, which is inherently conflicting. Directors should speak for
shareholders and hold the CEO and management accountable. WaMu's governance
shortcomings are numerous, including its failure to carefully consider Killinger's
development plan, raise serious concerns about low lending standards, and control the
expanding portfolio of time-bomb loans. The board's worst mistake was waiting so
long to fire Killinger.

III. Statement of the Problem

First, California was where it did much of its business. There, the housing market
fared less well than in other regions of the nation. Home values began to decline
nationwide in 2006. After peaking at approximately 14% increase year over year in
2004, that is. The national average home value had decreased 6.5% from its peak in
 2006 by December 2007. Housing costs had not decreased in years. There were
around 10 months' worth of available homes nationwide. Over 15 months' worth of
merchandise remained unsold in California. The state typically held enough
inventories to last for six months. Many loans exceeded 100% of the value of the
home by the end of 2007. WaMu has made an effort to be cautious. Only 20% of its
mortgages were written at higher rates.
The expansion of WaMu's branches too soon was the second factor in its demise.
It was consequently situated poorly in an excessive number of markets. It thus made
an excessive number of subprime mortgages to illegitimate buyers.
The third occurred when the secondary market for mortgage-backed securities
collapsed in August 2007. WaMu was similarly unable to sell these mortgages as
were many other banks. Falling real estate values meant that they exceeded the value
of the homes. The bank was unable to raise money. Mortgages that were in default
were written off for $1.6 billion in the fourth quarter of 2007. It was compelled by
bank regulation to set money aside to cover any losses. This led to a $1.9 billion net
loss for the quarter for WaMu. Its annual net loss
The bankruptcy of Lehman Brothers on September 15, 2008, was the fourth.
Hearing this caused alarm among WaMu depositors. Over the course of the following
10 days, they withdrew $16.7 billion from their savings and checking accounts. The
Federal Deposit Insurance Corporation stated that the bank lacked the necessary
funds to carry out day-to-day operations. As a result, the government began seeking
for purchasers. It represented more than 11% of WaMu's total deposits. When viewed
in the context of the 2008 financial crisis timeline, WaMu's bankruptcy can be better
understood.
The fifth was the average size of WaMu. It wasn't large enough to be unavoidably
disastrous. Consequently, the U.S. It wouldn't receive a bailout from Treasury or the
Federal Reserve like Bear Stearns or American International Group did.

IV. Objectives
In order for Washington Mutual to rebound, this case study seeks to clarify the
issues that contributed to its demise.
V. Areas of Consideration
A. SWOT Analysis
STRENGTHS WEAKNESSES
Strengths include the Wamu's resources and Weaknesses are the components, aptitudes, or
powers for destruction, which can be used to abilities that Wamu's Destruction is lacking. It
create a long-lasting competitive edge in the restricts the company's capacity to develop a
market. Five major resources and skills, past long-lasting competitive advantage. Financial
experiences and accomplishments, money resources, activities and processes, historical
resources, physical resources like land and experiences and accomplishments, physical
buildings, people resources, and activities and resources including land and buildings, and
procedures are what make up strengths.
and capabilities that make up weaknesses.
 Strong Brand Equity and Brand
Awareness - In the domestic market it
competes in, Wamu's Destruction has
some of the most well-known brands.
The brand awareness is crucial for
drawing in new clients looking for
solutions in related industries to
Leadership and Strategy.
 High Margins: Wamu's Destruction
charges more than its rivals do. From
the Forty-Six to Sixteen case study,
this has given Wamu's Destruction
resources to not only fend against
competition pressures but also to
engage in research and development
of Washington Mutual
 Strong Domestic Market in which
Wamu's Destruction Operates -
Wamu's Destruction's domestic
market is both a strength and a barrier
to the company's expansion and
innovation. According to information
in the case study Washington Mutual:
From Forty-Six to Sixteen, Wamu's
Destruction can expand quickly in its
native market without much
innovation but will need more
investment in R&D to join the
international market. The temptation
for the managers at Wamu's
Destruction so far has been to
concentrate solely on the domestic
market.
 Wamu's Destruction's diverse product
selection enables it to simultaneously
target several local market segments
with its products and brand portfolio.
Wamu's Destruction has been able to
diversify its revenue sources and profit
mix as a result of this.
 Successful Go To Market History -
Wamu's Destruction has a proven
history of introducing new items to the
domestic market as well as catering to
human resources are the five key resources
 Low Return on Investment - Despite
Wamu's Destruction's strong balance
sheet, "Return on Invested Capital" is
one metric that warrants consideration.
Robert D. Dewar asserts that Return
on Invested Capital, as opposed to
metrics favored by financial analysts
like Return on Equity and Return on
Assets, is the most dependable
indicator of profitability in the
leadership and strategy domains in
which Wamu's Destruction operates.
 Technology Integration - Wamu's
Destruction has integrated technology
into its backend procedures, but it
hasn't been able to fully utilize that
power in its front-end procedures.
 Lack of diversity in the workforce -
Given that the majority of Wamu's
Destruction's growth to date has come
from within the country, I think there
is not enough diversity there. Robert
D. Dewar claims that this could lessen
Wamu's Destruction's chances of
being a commercial success abroad.
 Organizational Culture - It appears
that Wamu's Destruction's
organizational culture is still
controlled by divisional turf fights,
which causes managers to keep
knowledge close to their chests.
According to Robert D. Dewar of
Washington Mutual: From Forty-Six
to Sixteen Case Study, this may
seriously impede future growth since
knowledge silos may result in the loss
of market prospects.
 Wamu's Destruction's track record on
environmental concerns is not
particularly encouraging, thus the
environment is not something they
should be taking into consideration.
Robert D. Dewar claims that since
 varied markets based on the
perceptions of local consumers.
Robert D. Dewar claims that Wamu's
Destruction has tried numerous ideas
in various sectors and developed
effective leadership & people
management solutions.
 Due to the great loyalty of its present
customers, Wamu's Destruction can
further grow its market share with
superior products and services. There
is adequate proof, according to Robert
D. Dewar in Washington Mutual:
From Forty-Six to Sixteen research, to
show that Wamu's Destruction can
compete with other major players on
the international market with such
high-quality goods and services.
 Wamu's Destruction can invest in new
and varied initiatives that can further
diversify the revenue stream and boost
Return on Sales (RoS) & other metrics
if its balance sheet and financial
statements are strong.
OPPORTUNITIES
Wamu's Destruction can take advantage of
opportunities by leveraging
macroenvironmental conditions and trends to
either strengthen its current market position or
pursue future expansion. Opportunities can
arise from a variety of sources, including:
technical advancements, economic expansion,
rise in consumer disposable income, changes
in political situations & policies, and shifts in
customer tastes.
 Consumer Disposable Income
Growing - Wamu's Destruction can
create a new business model where
customers pay progressively for
utilizing its products using the
growing consumer disposable income.
Robert D. Dewar of Washington
Mutual states that Wamu's Destruction
can exploit this tendency to expand in
neighboring fields like leadership and
strategy
consumers now view environmental
safeguards as an essential component
of doing business, this could result in
consumer backlash.
 Despite the company's many patents
and copyrights, Wamu's Destruction's
business strategy is simple to imitate.
In the sector that Wamu's Destruction
works in, it is particularly challenging
to enforce intellectual property rights.
Robert D. Dewar contends that while
intellectual property rights are
successful at stifling competition of a
similar size, it is challenging to
prevent start-ups from upending
markets on numerous other levels.
THREATS
Threats are large-scale environmental
elements and developments that have the
potential to scuttle Wamu's Destruction's
business plan. Threats can arise from a variety
of sources, including rising consumer
disposable income, political upheaval and
policy changes, economic expansion, shifting
consumer tastes, and technology
advancements.
 Wamu's Destruction needs to cope
with these expenses as governments
try to collect greater environmental
fees to promote cleaner solutions.
Increasing costs component for
operating in developed markets
because of environmental laws. It
might translate into greater packaging
and delivery costs for Wamu's
Destruction.
 Threats from New Entrants as a result
 Wamu's Destruction operates in a
changing technological environment
due to the development in machine
learning and artificial intelligence.
Robert D. Dewar claims that Wamu's
Destruction can make advantage of
these advancements to boost
productivity, cut expenses, and alter
procedures.
 Lucrative International Market
Opportunities - Globalization has
created International Market
Opportunities. Wamu's Destruction is
in a great position to take advantage of
those chances and increase its market
share. Growth in the overseas market,
says Robert D. Dewar, can also aid
Wamu's Destruction to diversify the
risk since it will be less reliant on the
domestic market.
 Reducing Cost of Market Entry and
Marketing into International Markets -
According to Robert D. Dewar, the
risks associated with market entry and
marketing in international markets
have been significantly lowered as a
result of globalization and the
explosion of digital marketing and
social media.
 Wamu's Destruction can take
advantage of this tendency to lessen
the number of options available on the
market and concentrate marketing
efforts on just the most profitable
goods.
 Growing Market Size and Changing
Consumer Preferences - Over the past
15 years, the market has grown
quickly. The flood of new clients has
also influenced changes in consumer
tastes and preferences. Due to this,
Wamu's Destruction faces two
significant challenges: how to satisfy
both existing consumers and potential
new ones. Wamu's Destruction has
made an effort to diversify by using
of Falling Costs and Increasing
Efficiencies - Just as Wamu's
Destruction can benefit from the cheap
cost of customer acquisition through
social media and online shopping, so
can the rivals, both domestic and
foreign.
 After the 2008 Financial Crisis, there
was a credit binge. Because easy
access to credit could expire at any
time, Wamu's Destruction should
concentrate on lowering its reliance on
debt to grow. The celebration has
continued for more than ten years, and
if the Fed decides to end it, Wamu's
Destruction will incur significant
interest payments.
 Government Rules and Bureaucracy -
Under the increasing pressure from
protest groups and non-governmental
organizations, Wamu's Destruction
should keep a careful check on the
rapidly changing government
regulations, particularly with regard to
environmental and labor safety issues.
 Industry with a culture of sticky
prices: Wamu's Destruction works in a
sector with a culture of sticky prices.
Robert D. Dewar of Washington
Mutual (B): From Forty-Six to Sixteen
Case Study claims that this may
prevent the company from raising
premiums to the level that its premium
prices merit.
 Buyers' increasing bargaining power -
Wamu's Destruction consumers'
negotiating power has grown
dramatically over time, which is
driving down costs. Although I think
it will only provide temporary
comfort, the corporation can attempt
horizontal integration to consolidate
and provide efficiencies. Robert D.
Dewar contends that Wamu's
Destruction requires substantial rather
than merely aesthetic modifications to
 several brands at first, and its business strategy.
subsequently by including new
features based on client preferences.

VI. Alternative Courses of Action (ACA)

 WaMu may employ thorough credit risk score analysis to assist in
determining the degree of credit risk associated with each
customer. This method can be used to quickly determine which
consumer is eligible for a loan and has the validity of the customer
to prevent fraud and other issues.
 To plan and carry out daily risk management actions, Wamu's top
management should establish a dedicated risk management
function. Provided data correctness will result in an efficient
market risk management information system that will generate
accurate and trustworthy reports for top management to use for top
management level decision making.
VII. Recommendation
 In order to save the business large amounts of money, risk
management needs to be strengthened. The revenues greatly
exceed the expenses incurred by these operations. As a result,
viewing them as a cost center is skewed and could have long-term
negative effects on the business.

VIII. Action Plan

Tasks
1. Establish a separate risk
management function
Person Responsible
Top/Executive Level
Management
Time Implementation
DRY RUN
1. Identifying and
assessing the potential risk
in the banking business,
2. Developing and
executing an action plan to
deal with and manage
these activities that
incur potential losses,
3. Continuously reviewing
and reporting the risk
management practices after
 they have
been put into
action/operation.
2. Draft policies for savings Top/Executive Level FEEDBACK
and loans. Management ACTION PLAN IS ACCEPTED
3. Scale back acquisitions. Top/Executive Level DECISION
Management FULL IMPLEMENTATION

4. Create a thorough credit Loan Staff

inquiry and borrower
evaluation