Tuesday, November 27, 2012

Grind on WaMu

I've just finished  Kirsten Grind's The Lost Bank about the collapse of WaMu and I'll give it a thumbs up--surely a worthy addition to the burgeoning stack of post-2008 books trying to figure out the license number of the truck that just hit us.  I've seen at least one review dismissing it as merely rehashing stuff from Wall Street and the Financial Crisis, the report of the Senate Permanent Subcommittee on Investigations,  which offers am account of WaMu as one of its "case studies."   There's a superficial appeal to that charge but I think it may miss the point.  True that Grind and the Senate committee are telling the same story. True also that Grind fleshes it out with a lot of anecdotes that you don't (and would want to) find in a committee report.  But the anecdote is not mere surplusage.  What she does do is put a lot of flesh on the bone. I'd gladly recommend it to (say) a student or any other visitors from a distant planet trying to get a feel for what it was like to live through both the good years and the bad.  She doesn't blink away the fact that the collapse of WaMu was a terrible misfortune for so many, particularly stockholders and investors.  She also doesn't hesitate to stress that, however far as it may have careened off the rails, WaMu began life as an indispensable enterprise of which its investors, its employees and its customers could be proud.

It's pointless to offer a fullscale review at this late date, but let me meditate for a moment on one issue for which I had a better feel myself.  My topic is the mystery man at the center of the story--Kerry Killinger, for so long the CEO, the man in charge as the bank took its long and ultimately disastrous voyage from small, dull, responsible community  bank to frantic high roller in the great financial casino.

For those who haven't been following:  WuMu began life a bit over a century ago and enjoyed--that would be the right word--a long life as a responsible (and profitable) public citizen.  It ran into trouble during the savings and loan crisis and fell under the leadership of a non-banker lawyer who had been its outside counsel and became its reluctant triage surgeon.  It appears that he, against long odds, restored the bank to health.  If Stride is to be believed, along the way he assembled a skilled, and cohesive management team who seemed to enjoy playing nice.

As I say, it was he who set the bank right--but it was also he who with great care and much reflection, selected his successor.  And he chose Killinger, who stayed at the helm of the bank for the next 18 yearas--that is until he was removed by the board of direcctors just days before the bank fell into bankruptcy.

Grind spends a lot of ink on what might seem to be the prehistory of the collapse as she narrates the whole trajectory of Killinger's leadership.  You watch the bank as it piles into the acquisition game--one game at which they actually seemed to be pretty good.  But that's "good" in the sense of "technically proficient"--they could make it happen in hours.  But you get the uneasy feeling that in substance, the deals are getting wilder and wilder.

Grind apparently didn't have access to Killinger himself, so we don't have much insight into his thoughts.  But I'm guessing that one day he woke up and realized he was in a game of eat or be eaten--that he couldn't stay a small, responsible, 30-year-fixed bank even if he wanted to; either he gobble up all his competitors or he himself would be gobbled up by somebody else (who would now be the subject of its own chapter in the annals of banking disaster, but that's a side issue).

You also get the sense that Killinger shared at least one important characteristic with the leaders of so many other banking disasters--a fatal allergy to bad news.  Bear Stearns' Jimmy Cayne at the bridge table; Stan O'Neal who just didn't seem to get the fact that "risk" meant the possibility of bad news as well as of high returns; Dick Fuld hunkered down in his bunker while the shells crash around him--the one thing all thee guys seem to share is a near-obsessive aversion to the dark side, and a dim view of anyone who tried to take them there.

As time went by and the problems began to burgeon, more and more of the old team began to peel away, I suspect that Killinger found himself more and more isolated in his own veil of folly--a locale where, for aught it appears, he enjoyed spending his time.   It is hard to say just what sort of moral you might draw from this kind of a story.  Maybe his predecessor made the wrong choice at the beginning.  Or maybe Killinger is just one of those guys who failed to grow into his new role.  They say these challenges can bring out unsuspected strengths in some people while others, they merely crush.  A Google search for Killinger tonight. turns up his name under the aegis of something called "Crescent Capital Associates."  The listing says that "the most recent annual report for Crescent Capital Associates, Llc is due on September 30, 2011" (italics added--huh?).  The address looks like it is probably Killinger's home.

1 comment:

CrocodileChuck said...

1) WaMu: a thrift, not a bank ("Mu"=Mutual)
2) Its not the buying that's the trick, its integrating the acquired franchise with the existing enterprise, in terms of policies, procedures, business processes and IT. Ask Citi, BoA, Chase.
3) Above a certain size, there are diseconomies of scale in banking. A long time ago, McKinsey fingered this at $200M (balance sheet). Look at the Big Five today, and ask yourself the obvious question.