For sheer evaporation of shareholder value, it’s hard to top what the holders of Washington Mutual (WM) have had to endure. Over the last 12 months, their stock has fallen by 90%. Over the past five years, it has fallen 35%--annually.
Yet incredibly, the crew that has presided over this destruction, led by CEO Kerry Killinger, is still in place. How much more devastation will this management wreak before the board finally acts?
From the beginning, WaMu’s business model has been fundamentally flawed. The company is essentially a conglomeration of thrifts acquired through the years, then integrated with varying degrees of success. WaMu has long touted its expertise in mortgage lending. Yet over time, it paid the highest prices to produce the worst credit—all delivered with abominable service.
Then there was the company’s vaunted retail push of the early 2000s. Do you recall? WaMu opened hundreds of branches, many in entirely new markets where it had nothing in the way of a franchise or competitive edge. You know what happened next. In Chicago, for instance, the company went from zero to 147 branches in three years—and ended up with market share there of all of 0.3%. Over the past three years, WaMu’s average deposits per branch have actually declined. If there’s a market where the company has gained deposit share over that time, I haven’t heard of it.
The entire enterprise, meanwhile, has largely been funded by limited high-cost deposits, wholesale borrowing, and massive government borrowings via the Federal Home Loan Bank.
(Most recently, the company announced over the weekend that it’s added $10 billion in “capital.” Well, not exactly. All it’s really done is borrow another $10 billion from U.S. taxpayers via the FHLB. FHLB loans to WaMu now come to something like $60 billion, or more than 20% of the company’s liabilities. WaMu’s FHLB spigot counts as new capital? More like new debt, I’d say, courtesy of you and me.)
So where are we now? A company with thin capital, few core deposits, and a demonstrated ability to underwrite and service mortgages very, very badly. Even TPG, supposedly smart money, has been burned. Its massive investment at $8.50 per share is now worth just $4.00 per share.
Enough is enough. The board needs to make some changes—and those changes should start at the top.