WaMu, bank runs, zombies and Bair oh my

The story of Washington Mutual Inc. is a horror story for bank executives and one that just won't die. Zombie WaMu has sparked tons of class-action lawsuits, and now at least one of those lawsuits will be heading to trial. Because WaMu shareholders would not bury the bank, the Pudget Sound Business Journal dug deep into the story behind the bank's failure. The paper discovered the bank failed after two bank runs occurred last year, executives may have misled shareholders in order to build capital, and the Federal Deposit Insurance Corp.'s Sheila Bair may have been pitching the bank as a distressed asset sale as bank executives were looking for a buyer.

The failure of WaMu was ultimately due to a lack of consumer confidence in the bank. The first bank run was actually right after the collapse of IndyMac in July 2008. The bank suffered $9.4 billion in withdrawals and was not reported to the shareholders or the public because it was able to build back that capital by "luring customers through a new certificate of deposit that offered 5 percent interest, a strong return at the time." The loans were sold cheap, and another concern for consumers and even employees that worked at the bank were ARMs, pay-option adjustable-rate mortgages, according to a report by the Pudget Sound Business Journal.

More at: http://www.thedeal.com/dealscape/2009/10/wamu_failed_because...