Photo: Alan Cleaver on Flickr
The FDIC just sued former WaMu top brass for gross negligence, which the agency says cost the bank billions. And the lawsuit didn’t end with the executives; the FDIC sued their wives too.In their complaint the agency accused ex-CEO Kerry Killinger, ex-COO and President Stephen Rotella and ex-chief of home loans, David Schneider of being unduly “focused on short term gains to increase their own compensation, with reckless disregard for WaMu’s longer term safety and soundness.”
Killinger and Rotella, don’t agree. And they’ve come out with some pretty impassioned rebuttals. We’ve highlighted the best parts for you.
Here’s Kerry Killinger’s irate statement:
The civil lawsuit filed by the FDIC today against Kerry Killinger is baseless and unworthy of the government. The factual allegations are fiction. The legal conclusions are political theatre. Trial in a courtroom that honours the rule of law—and not the will of Washington, D.C.—will confirm that Kerry Killinger’s management, diligence and commitment to Washington Mutual responsibly and consistently served the interests of its depositors, customers and shareholders.
Washington Mutual’s management structure was a model of corporate governance. The mortgage lending practices of the Bank were established by a professional corps of bankers and risk managers with extensive experience in home lending. Those practices were in turn carefully reviewed and monitored by independent credit risk management and board committees. An internal audit group similarly reported directly to an audit committee of the board to assure compliance with law and management objectives. The work of the management and board committees were, in turn, subject to continuous review and scrutiny by outside auditors and, perhaps most importantly, by federal bank regulators.
The presence and prominence of the federal bank regulators at Washington Mutual cannot be overstated. First, they had offices on premises “24/7”. Second, they had unfettered access to the books, records, accounts, committee minutes, and personnel of the Bank. They roamed freely and paid particular attention to the quality of the assets—i.e., the mortgages—and the liquidity of the Bank.
Third, well into the summer of 2007, the Office of Thrift Supervision consistently reported to management and to the board that Washington Mutual’s asset quality and liquidity profile evidenced a strong and well managed bank. Those judgments were confirmed by the Bank’s external auditors who paid particular focus to the adequacy of loan loss reserves—again, a measure of quality and of the transparency of management regarding prospective risk.
Beginning in late 2007 and in the spring of 2008, after the financial climate had changed dramatically, management took effective, immediate and concrete action by raising $10 billion in additional capital to reinforce the safety and soundness of the Bank. Those initiatives—once applauded by the regulators as diligent and responsible management—have, through the alchemy of Washington, D.C. politics, been turned into allegations of gross negligence. Such a “two-faced” posture by the government will be exposed in a court of law.
For 18 years as CEO of Washington Mutual, Kerry Killinger grew and managed the Bank in a responsible, diligent, and transparent manner.
The September 25, 2008 seizure and sale of Washington Mutual was demonstrably premature and unjustified. Had the benefits extended to Wall Street institutions within weeks of the seizure—e.g., increases in insurance limits, guarantees of bank debt, TARP purchases and capital injections, and added liquidity by the Federal Reserve—been extended to Washington Mutual, it too would have weathered the global financial crisis.
The management of Washington Mutual was sound and prudent. The FDIC’s much belated complaint will be refuted in court. As the FDIC has publicly stated, not one dime was lost by the FDIC insurance fund on the seizure and sale of the Bank. All that needs restoration is the truth about the good faith, diligence, and independently confirmed business judgment of Washington Mutual’s management.
As for Stephen Rotella, his statement oozed more dismay and surprise than his former boss, though he did tell the WSJ that he was furious that his wife and children would probably now be the subjects of a lot of negative media attenion, and that the FDIC has abused its power.
Check it out over the page… Stephen Rotella:
It is almost beyond belief that the FDIC would take action against an effective, hard working bank manager who performed well under extraordinary conditions in an effort to save an important financial institution.
The FDIC’s 2½ year investigation of WaMu lacks credibility and is unfair, since it has flatly refused Mr. Rotella’s offer to meet, answer their questions, and explain his role as Chief Operating Officer at the company. Furthermore, it is patently unfair for the FDIC to expect an individual to have perfect foresight into a crisis that the FDIC itself did not see coming.
Despite clear evidence of significant improvements during Mr. Rotella’s three-plus years at WaMu, the FDIC now seems to claim that Mr. Rotella’s efforts were not enough, even though its own examiners actively participated in the oversight of WaMu, rating the bank Satisfactory or better until the middle of 2008, just months before it seized the bank.
This continues a pattern of inequitable treatment of WaMu’s shareholders, creditors and employees. To this day, the seizure of WaMu in 2008, which was called a “mistake” by a senior Treasury official, destroyed billions in shareholder value and cost many thousands their jobs, remains controversial. It was doubly so since, within days, the federal government handed out billions of taxpayer dollars to save a select group of chosen financial institutions. This stands in stark contrast to the fact that no taxpayer dollars were used at WaMu. In fact, the FDIC will actually receive nearly two billion dollars of proceeds as a result of their decision.
Over the course of its investigation the FDIC has had more than ample time to conduct a proper and complete investigation of both WaMu and its own actions under duress. Any fair minded person would agree that during its lengthy investigation the FDIC should have interviewed Mr. Rotella. Had the agency done so, it would better understand that Mr. Rotella expressly joined WaMu in 2005 to help fix serious and deep-rooted problems that predated his arrival.
In the face of significant organizational challenges and the worst financial crisis in a generation, Mr. Rotella made significant progress in dealing with the issues he was hired to address. By the end of his three-plus years as Chief Operating Officer, the company had substantially reduced mortgage volumes and risk, begun to diversify the business mix, raised capital, and improved its efficiency.
The agency’s actions today should be deeply troubling to all thoughtful Americans.
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