Dochow, Darrel W.

Yale University

Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents Browse by Media Type 7-22-2008 OTS letter to FDIC re Examination of WaMu Darrel W. Dochow Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation Dochow, Darrel W., "OTS letter to FDIC re Examination of WaMu" (2008). YPFS Documents. 5115. https://elischolar.library.yale.edu/ypfs-documents/5115 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. Office of Thrift SupervisionDepartment of the TreasuryPacific Plaza, 200 1 Junipero Serra Boulevard. Suite 650. Daly City, CA 94014-1976P.O. Box 7165, San Francisco. CA 94 I 20-7165 . Telephone: (650) 746.7000 · Fax: (650) 746.700 iWest RegionJuly 22,2008Mr. Stan IvieRegional DirectorFederal Deposit Insurance Corporation25 Jessie Street at Ecker Square, Suite 2300San Francisco, CA 94105rttl.tDear~:I received the PDF copy of your letter dated July 21, 2008 regarding the completion of your2008 special insurance examination of Washington Mutual Ban (WMB) which was conductedconcurrently with the OTS's comprehensive examination of WMB and its parent holdingcompany, Washington Mutual Inc. (WMI). In your letter you state that the FDIC respectfullyrequests that any corrective programs imposed by OTS include a number of specific provisionsand further that OTS should direct WMI to raise a minimum of $5 bilion in equity capital andprohibit any future repurchase of holding company debt.As the FDIC knows, the OTS has and continues to take appropriate supervisory andenforcement action in its role as the Primary Federal Regulator for WMB and WMI. We haveconsistently worked closely with your dedicated examiner and regularly held discussions to keepthe FDIC informed of the condition of WMB and corrective actions. We downgraded thecomposite rating ofWMB on February 27,2008 to a "3" based on increasing concerns inearings, asset quality and liquidity. This downgrade was made prior to completion of the thenongoing examination which concluded June 30, 2008. On an interim basis we required a BoardResolution (adopted March 19,2008) resolving to improve asset quality, earnings, liquidity andweakesses and concerns in my February 27,2008 letter. We understand from direct discussionsand comments at the July 15,2008 meeting we held with the Board of Directors that OTS andFDIC are in agreement with the composite "3" rating for WMB. I further understand that itwasn't until I told management on June 20,2008 that OTS would pursue a Memorandum ofUnderstanding that the FDIC even incorporated that in their consideration. OTS is preparingenforcement action that I hope to present to the Board soon.I find it curious that your letter largely reiterates OTS examiner findings and currentcorrective actions that OTS has already initiated plus a request for OTS to direct WMI to raise aPage 2miimum of $5 billion in additional equity capital. WMI raised approximately $7 bilion inequity capital in April 2008 and inused $3 bilion into WMB. At my request, an additional $2bilion was infused into WMB this week. This is the first time that anyone from the FDIC hassuggested to me that WMI (the holding company) should raise an additional $5 billon in equitycapitaL. In checking with the examination team, I am told that back in May 2008, FDICexaminer Bob Charuat did a very rough capital analysis that did not follow GAAP and was basedon inappropriate assumptions. That analysis estimated potential life of loan losses at less thanWAMU's own recession forecast but suggested that $5 bilion additional holding companycapital might be needed at December 3 i, 2008 to exceed the WMI "elevated capital targets"assuming all losses were taken in 12 months, no core earnings or tax recapture after year one,permanent impairent of the OTTI at March 31, 2008 and a large loss factor for unused HELOCand credit card lines. The examiners reportedly discussed at the time that these assumptionswere not GAAP, included artificial constructs and that moving estimated potential life of loanlosses into 2008 was not realistic.I value the constructive working relationship that we have had, and I have and wil continueto consider the FDIC's views relating to our examination and supervision of institutions ofmutual interest. I would hope that we can continue to have ongoing discussions and notunexpected letter exchanges. The OTS takes its Primary Federal Regulator role seriously and wewil continue to do everything we can to effectively supervise entities under our jurisdiction.I look forward to seeing you on August 1,2008 at the Interagency meeting that the FDIC ishosting and to our morning meeting at the FRB.Sincerely,~~w.~~Darrel W. DochowRegional Director

OTS letter to FDIC re Examination of WaMu

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OTS letter to FDIC re Examination of WaMu

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