The Worst of Business 2008

Scandal of the year

The Washington Mutual Implosion

I was just following orders, even if they were mine….”

While Kerry Killinger didn’t actually say these words, they pretty much convey the gist of what he told a Rotary Club meeting in mid-June, a few months before Washington Mutual’s sudden crash and burn. According to reporters with The Seattle Times, Killinger said he wasn’t to blame for WaMu’s precipitous fall, even though he had served as its CEO for 17 years.

Although the Times pointed out that he was happy to be associated with the acquisitions that made Washington Mutual one of the Northwest’s top banks, he was surprisingly reticent to accept responsibility for the institution’s fall from grace. Instead, he pointed fingers at the Federal Reserve, the government and Wall Street.

He was especially frustrated that the bank’s high lending standards failed to prevent large loan losses. “When housing prices decline by up to 35 percent, even conservatively underwritten loans can perform poorly,” the Times quoted him as saying. What he neglected to mention was that a majority of the bank’s loans were the ones most likely to go south if the boom imploded.

Rotarians may have listened courteously, but contentious shareholders weren’t buying it. After seeing a major investor service lower WaMu’s credit rating to near junk status, hearing reports that the bank was expected to lose more than $21 billion in mortgage defaults and watching the stock drop 85 percent in a year, they called for his head in June.

His eventual departure in September didn’t help, however, as the plunge continued. New CEO Alan Fishman tried to shore up the sagging thrift, but he lasted all of 18 days before a run on the bank forced the feds to seize WaMu and sell most of its assets to JPMorgan Chase for the bargain-basement price of $1.9 billion.

Both CEOs laughed all the way from the bank—with a $7.5 million signing bonus for Fishman and a fat severance package for Killinger. On the plus side, much of the value of Killinger’s package was based on WaMu stock, now worth next to nothing. —David Volk

Biggest Losers

WaMu’s Shareholders

When federal regulators seized WaMu on Sept. 25 and then, within minutes, sold the bank to JPMorgan Chase, everyone appeared to get paid off. That is, everyone except for the bank’s investors. Taken by surprise and left holding the bag, shareholders and bondholders literally lost billions of dollars in the blink of an eye.

Lawsuits are flying and,

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