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US charges 3 with negligence in WaMu bank collapse

By Agence France-Presse
Friday, March 18, 2011 6:50 EDT
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WASHINGTON (AFP) – The US government accused three bankers Thursday with reckless mismanagement that led to the country’s largest-ever bank collapse during the 2008-2009 home loan crisis.

In rare charges brought against bankers involved in the home-finance industry collapse, the Federal Deposit Insurance Corporation told Seattle federal district court that the three took Washington Mutual Bank — known as WaMu — into billions of dollars of extremely risky loans “knowing that the real estate market was in a ‘bubble’ that could not support such a risky strategy.”

The FDIC said the executives piled risky assets on top of risky assets on the bank’s books to boost their own compensation, “with reckless disregard for WaMu’s longer term safety and soundness.”

And when they saw the bank could not be sustained, they tried to move their own money out of the way of any creditors.

“Their negligence, gross negligence and breaches of fiduciary duty caused WaMu to lose billions of dollars,” the FDIC said.

“As of today, WaMu is the largest bank to fail in US history.”

After the FDIC took control of it, the bank’s assets were sold to JPMorgan Chase bank on September 25, 2008, for $1.9 billion.

Sources close to the case said the FDIC is claiming more than $900 million in damages in the case.

The charges came amid widespread criticism that no high-paid executives of major financial institutions at the center of the US financial crisis have been convicted of any charges, after the government shouldered hundreds of billions of dollars in rescue and stablization operations.

The FDIC, which took the brunt of commercial bank failures because it guarantees bank deposits, identified the three bankers as former WaMu chief executive Kerry Killinger, president David Schneider and executive Stephen Rotella.

In a court filing the FDIC said the three pushed lending into some of the country’s most risk-laden housing markets, notably Florida and California, serving some of the most risky borrowers.

They pursued this “myopic” strategy to build the bank’s home-loan portfolio “despite their own awareness of the inevitable decline in the overheated housing market.”

Under their lead, WaMu lacked the bank infrastructure and systems to measure the risk they were taking on, the government agency said.

The three were motivated by the prospect of building their own paychecks. The FDIC said together they collected more than $95 million in compensation from 2005 to 2008.

But as the bank’s losses mounted in early 2008, “Killinger and Rotella recognized the potential problems and took steps to move at least part of their wealth beyond the reach of their creditors,” it said.

Agence France-Presse
Agence France-Presse
AFP journalists cover wars, conflicts, politics, science, health, the environment, technology, fashion, entertainment, the offbeat, sports and a whole lot more in text, photographs, video, graphics and online.
 
 
 
 
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