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HomeMy Experience with Washington Mutual
Posted by Larry Doyle on April 13th, 2010 11:01 AM |
What really happened at Washington Mutual?
With former Washington Mutual executives facing a Senate subcommittee today, all eyes and ears in Washington are focused on the lending practices and management of this failed thrift.
Did Washington Mutual knowingly originate fraudulent loans? Did WaMu reject mandates from regulators to change lending practices? Did the regulators themselves even know what was going on at Washington Mutual? All great questions deserving full and total transparency if America is ever to fully understand what happened on Wall Street. (more…)
Simon Johnson Provides Mega-Sense on Cents
Posted by Larry Doyle on April 5th, 2010 2:02 PM |
Is the Wall Street landscape 2010 merely a precursor to another systemic crisis in which the “too big to fail” banks come running to Uncle Sam for more bailouts? Selected senior bankers on Wall Street, including JP Morgan’s Jamie Dimon, have publicly stated that the markets and our economy need to ready themselves for crises on a more regular basis. If that is the case, is this truly any way to run a financial system, let alone a country? I do not think so, nor does Simon Johnson. Who is Johnson? (more…)
Volcker Rule Gains Support of Former Treasury Secretaries
Posted by Larry Doyle on February 22nd, 2010 3:59 PM |
Score major points for former Fed Chair Paul Volcker in his pursuit to restructure Wall Street. How so?
A letter in this morning’s Wall Street Journal from five former Treasury Secretaries endorses Volcker’s proposal to limit proprietary trading activities in our largest banks. The letter reads,
We who have served as secretary of the Treasury in both Republican and Democratic administrations write in support of the proposed legislation to prohibit certain proprietary activities of commercial banking organizations—the so-called Volcker rule, as part of needed financial reform (“It’s Time for Financial Reform Plan C,” by Alan Blinder, op-ed, Feb. 16).
The principle can be simply stated. Banks benefiting from public support by means of access to the Federal Reserve and FDIC insurance should not engage in essentially speculative activity unrelated to essential bank services. (more…)
Elizabeth Warren Exposes Jamie Dimon
Posted by Larry Doyle on February 9th, 2010 8:37 AM |
Elizabeth Warren and Jamie Dimon
How is it that some people are able to aggressively promote the virtues of truth, transparency, and integrity within our financial system while others would seem to talk a good game but do not truly walk the walk? The key, in my mind, is that the former are not beholden to a constituency focused on short term maximization of profits and revenues. Who is distinguishing herself as a leader in this category? Elizabeth Warren, the current chair of the Congressional Oversight Panel to investigate the U.S. banking bailout.
Warren writes in today’s Wall Street Journal of Wall Street’s Race to the Bottom. This race is very much a function of implementing strategies and developing products that have served to maximize the short term revenues of these firms, while eroding the very foundation of the financial system itself. (more…)
The King of Wall Street: Larry Fink
Posted by Larry Doyle on June 17th, 2009 11:17 AM |
BlackRock CEO, Larry Fink
With the downfall of Wall Street over the last two years, we have seen some giants within the industry summarily dismissed and, in certain cases, demonized. Who knows what the future holds for Dick Fuld, Jimmy Cayne, John Thain, and Angelo Mozilo.
With their demise, who now reigns over the Wall Street kingdom? Many would debate that either Lloyd Blankfein of Goldman Sachs or Jamie Dimon of JP Morgan Chase is the “king of the court.” Well, Lloyd and Jamie certainly wield significant power and influence on Wall Street, but there is no doubt that the King of Wall Street is the CEO of BlackRock, Larry Fink.
Who is Larry Fink? What is BlackRock? How did he ascend to the throne?
I consider myself fortunate to have worked for Larry for the first 5 years of my career at First Boston. I learned the business under his watch. He was more than fair with me and I owe him a debt of gratitude for giving me an opportunity.
Larry came to Wall Street in the late ’70s and is largely credited, along with Lew Ranieri of Salomon Bros., for developing the mortgage-backed securities sector. First Boston and Salomon dominated the MBS sector of the market in the ’80s with a combined 70%-75% market share. I certainly did not fully appreciate it at the time, but my 7 years at First Boston were a fabulous education.
During my last two years at First Boston, I did not work for Larry. He moved on to join Blackstone, a new private equity venture. BlackRock was a part of Blackstone and subsequently spun off.
BlackRock was initially a shop that primarily marketed mutual funds. Over the last 21 years, BlackRock has experienced tremendous growth, both organically and via acquisitions. Just the other day, BlackRock purchased Barclays Global Investors for $13 billion. With BGI in the fold, BlackRock will have approximately $2.8 trillion in assets under management.
BlackRock typically gets the first call from Washington when workout situations arise. They were engaged to assess and manage the risks upon the demise of Bear Stearns and AIG.
BlackRock is recognized as the preeminent risk manager on Wall Street. In fact, one of BlackRock’s most profitable units is a risk management division known as BlackRock Solutions. How uncanny that BlackRock has flourished based upon its risk management capabilities. Why? Under Larry’s watch at First Boston in the mid to late ’80s, risk management within our MBS business was almost non-existent.
I would never air dirty laundry nor talk out of school, but Larry himself has referenced this time period as being a tremendous education for him along with a sore spot. Let me expound. (more…)
Let’s Look Under the Washington Mutual Rock
Posted by Larry Doyle on May 28th, 2009 1:02 PM |
Many people may think Washington Mutual is just another large financial conglomerate that has since gone into thrift heaven via its takeover by JP Morgan. While WaMu is now part of the JPM franchise, it continues to send very real signs which provide great insight as we navigate the economic landscape.
Thank you to our friends at 12th Street Capital for highlighting a release put forth yesterday by Jamie Dimon, chairman and CEO of JP Morgan. As the Financial Times reports, JP Morgan Warns on Credit Card Woes:
Jamie Dimon, JPMorgan Chase chief executive, warned on Wednesday that loss rates on the credit card loans of Washington Mutual, the troubled bank acquired last year by JPMorgan, could climb to 24 per cent by the year end.
In the past, credit card loss rates have tracked the unemployment rate but that relationship has been breaking down for more troubled credit card portfolios, such as the $25.9bn in WaMu credit card loans.
At the end of the first quarter, 12.63 per cent of the WaMu credit card loans were deemed uncollectable by JPMorgan. The bank estimates that figure could reach 18 to 24 per cent by the end of 2009, depending on economic conditions.
The initial question begs as to how and why the credit performance of WaMu’s cardholders could be that much worse than the industry as a whole. For those unfamiliar with Washington Mutual, the institution made a failed attempt to penetrate the Wall Street fortress via leveraging its credit origination platform. WaMu was one of the most aggressive lenders across the spectrum of products. As I wrote back on November 12th in The Wall Street Model Is Broken….and Won’t Soon Be Fixed:
At the turn of the century, the Wall Street model was a pure “originate to distribute” model with little to no residual risk on behalf of the originators or underwriters. When there is no residual risk, those who “WIN” are the players that can purely process the most volume. Well, how does one get volume? Lower the credit standards, put fewer restrictions on borrowers, little to no covenants (NINA Loans: no income, no asset check).
Washington Mutual was the poster child for aggressive, if not irresponsible, lending. When their distribution capabilities ceased, the institution was left “holding the bag.” That bag was filled with credit cards now projected by the TOP banker on the street to default at twice the norm. What more can we learn in this process? Let’s dig deeper. (more…)
The Scarlet Letter
Posted by Larry Doyle on April 16th, 2009 12:44 PM |
Competitive people by their very nature like to win. There is nothing wrong with that. In fact, our country was built upon risk taking entrepreneurs who blazed trails and opened markets in the pursuit of profit.
Clearly, we have experienced enormous abuses in many parts of our economy over the last decade. The fact that rating agencies and regulatory authorities have been negligent – if not complicit – in the process has only added to the turmoil. In my opinion, our legislators have been as much a part of the problem as the solution.
For many of those who have either mismanaged their business or abused business ethics along the way, the government has stepped in with billions in support. Our markets have suffered as a result.
Against this backdrop, the major rub in the world of finance is distinguishing between the strong banks and the weak banks. Well, Jamie Dimon issued as aggressive an assessment as I have ever seen on this specific topic. In a Bloomberg report on JP Morgan’s earnings,
Chief Executive Officer Jamie Dimon, who today reported first-quarter profit that beat analysts’ expectations, said his firm could repay U.S. government rescue funds “tomorrow.”
Dimon, called money received through the Troubled Asset Relief Program “a scarlet letter.”
Will Jamie Dimon be the Next Treasury Secretary?
Posted by Larry Doyle on March 20th, 2009 9:02 PM |
The pressure on Treasury Secretary Tim Geithner is increasing from within the Democratic Party, across the aisle, and the media. Will Tim be fed to the lions? Well, the standard procedures of implementing change seem to be occurring. What are those steps?
JP Morgan Chairman and CEO, Jamie Dimon
1. A vote of confidence by the Administration. Always a kiss of death!
2. Leak the name of a strong prospective secretary.
Who might that be? JP Morgan Chairman and CEO, Jamie Dimon.
Dimon is enormously well respected in Washington and Wall Street. He can quickly build a team. He has run very large organizations. He has been a longtime Democratic supporter and publicly promoted President Obama and his plans.
I find it interesting that Dimon’s name was bandied about last October as a prospective leader of Treasury. Market Watch highlighted this fact in reporting The Next Treasury Secretary Is…
As the firestorm over the prospective legislation to restrict Wall Street bonuses grows, do not be surprised to see Dimon ride in on the white horse to broker peace between Washington, the financial community, and the public at large.
LD
Lessons from Bear Stearns
Posted by Larry Doyle on March 16th, 2009 10:37 AM |
It was one year ago that the Federal Reserve and Treasury delivered Bear Stearns into the hands of JP Morgan for $2 a share. Bear Stearns stock had traded above $170 a share in 2006. With the passage of time, what are some of the lessons learned and what questions remain unanswered.
1. Although Bear Stearns employees and shareholders may not qualify a price of $2 a share (revised to $10 a few weeks later) as being saved, would the financial system have been better off letting Bear totally fail? Why? If Bear had failed, many people do not believe we would have had the breakdowns in our financial systems that occurred because of Lehman’s failure.
2. Did Dick Fuld, CEO of Lehman, assume that the Fed and Treasury would save Lehman much as they did Bear? Was he less aggressive in pursuing increased capital injections during the Summer 2008 as a result? Many people believe this to be the case. (more…)
