Washington Mutual’s Failure Under FBI Scrutiny

Federal authorities are trying to figure out the reason behind the collapse of Washington Mutual Inc. (WaMu). It is investigating the causes which led to the banking operations being sold to JPMorgan Chase and Co. last month.

A task force has been created by the office of U.S. Attorney Jeffrey Sullivan. This team has investigators from the Federal Bureau of Investigation (FBI), the Federal Deposit Insurance Corp., the Securities and Exchange Commission and the Internal Revenue Service.

Sullivan said, “Due to the intense public interest in the failure of Washington Mutual, I want to assure our community that federal law enforcement is examining activities at the bank to determine if any federal laws were violated.”

WaMu’s branch was taken over by JPMorgan, the biggest U.S. bank in terms of market value. This acquisition was done on September 25 for $1.9 billion. Two days later, the Seattle based company for bankruptcy.

As per the Office of Thrift Supervision, from September 16, $16.7 billion was withdrawn by WaMu customers. However, JPMorgan spokesman Tom Kelly refused to comment.

FBI investigation has revealed that WaMu suffered losses to the tune of $6.3 billion from October 2007 through June. This was mainly due to the defaults of home loans, majorly subprime and option adjustable-rate mortgages. This led to plunging down of the stocks by upto 95%.

The company had predicted that it will lose $19 billion over the period of next 2-1/2 years. It also revealed that it was under tremendous pressure since September 8 when it fired Chief Executive Officer Kerry Killinger.

FBI is investigating into 26 other companies which include Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc. and American International Group Inc.

Meanwhile, JPMorgan reported that its third-quarter net income fell down by 84% to $257 million. But the takeover of WaMu took care of about $5.8 billion of writedowns, losses and credit provisions.

“Given the significant losses to investors, employees, and our community, it is fully appropriate that we scrutinize the activities of the bank, its leaders, and others to determine if any federal laws were violated”, added Sullivan.