WaMu “Walking the Mile”

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Washington Mutual forced out it’s CEO yesterday as losses tied to mortgage and credit card delinquencies continued to hurt the bank. Washington Mutual is a story that everyone needs to keep their eye on. We’ve been reporting for nearly a year that Washington Mutual has been one of the most under-discussed potential timebombs of the US banking system. Consider the following:

Washington Mutual has kept notoriously low levels of loan loss reserves
Washington Mutual has taken massive losses quarter after quarter
Washington Mutual has been booking most of its profit from the accumulated, deferred interest of its massive Option ARM portfolio

These are what one might call 3-strikes. And now the CEO is out. Let’s see how much longer the company operates before slipping in to receivership.

From The New York Times:

Mr. Killinger is the latest chief executive in the financial services industry to lose his job as the credit crisis has worsened. Earlier on Sunday, the heads of Fannie Mae and Freddie Mac were forced out after the Treasury Department orchestrated a takeover of the companies. The chief executives of Citigroup, Merrill Lynch, Wachovia and Bear Stearnshave also been dismissed as losses mounted.

Washington Mutual, based in Seattle, has been one of the lenders hit hardest by the downturn in the housing market. It has one of the biggest portfolios of so-called pay option mortgages, and had long focused its operations on lower-income urban borrowers. Losses at the bank have been devastating.

There appears to be no quick fix to its troubles. In April, Mr. Killinger turned to TPG and several other private equity investors after it became clear that the bank needed capital. The deal allowed Mr. Killinger to keep his job, but many analysts said the bank would need another infusion. JPMorgan had previously submitted a bid that would have led to his ouster.