Former WaMu boss says bank seizure unfair

City A.M. Reporter
THE former chief executive of Washington Mutual yesterday accused the US government of unfairly seizing the bank in September 2008 and selling it for the bargain price of $1.9bn (£1.2bn) to JP Morgan.

Kerry Killinger said the failed lender “should have been given a chance to work its way through the crisis” in testimony prepared for a senate hearing.

But two former risk bosses, Ronald Cathcart and James Vanasek, undermined him by saying their calls to rein in risky mortgage lending in the run-up to the crisis fell on deaf ears.

Killinger, who was paid more than $100m between 2003 and 2008, was forced out in 2008, just weeks before the bank was seized.

Senator Carl Levin, the chairman of the subcommittee, blasted the bank’s management for ignoring warning signs that bank employees often disregarded the bank’s credit standards.

Levin told reporters this week that he would leave it up to the US Department of Justice whether any executives at Washington Mutual should be charged with criminal wrongdoing.

Levin’s panel found that the thrift contributed to the financial crisis by making hundreds of billions of dollars in shoddy loans – many lacking documentation or based on fraudulent paperwork – that were packaged and sold to investors as mortgage-backed securities.

“To keep that conveyor belt running and feed the securitisation machine on Wall Street, Washington Mutual engaged in lending practices that created a mortgage time bomb,” Levin said yesterday at the hearing.

James Vanasek, WaMu’s chief risk officer from 1999 to 2005, said the mortgage industry generally began taking on more risk ahead of financial crisis. He said he tried to cap the percentage of high risk and subprime loans in the thrift’s portfolio but was thwarted by lower-level managers.

Regulators seized Washington Mutual less than two weeks after Lehman Brothers filed for bankruptcy, sparking global panic.