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Originally published Sunday, November 9, 2008 at 12:00 AM

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Treasury's Paulson warned WaMu CEO to sell before it failed

Two months before Washington Mutual failed, Treasury Secretary Henry Paulson warned then-CEO Kerry Killinger that he ought to sell the Seattle-based thrift before it deteriorated further.

Rami Grunbaum, deputy business editor, and Seattle Times Business staff

Two months before Washington Mutual failed, Treasury Secretary Henry Paulson warned then-CEO Kerry Killinger that he ought to sell the Seattle-based thrift before it deteriorated further.

"Paulson said, 'You should have sold to JPMorgan Chase in the spring, and you should do so now. Things could get a lot more difficult for you,' " said one of several current and former high-ranking WaMu executives familiar with details of the call.

Paulson's July comment, which has not been previously reported, caught Killinger and his top brass off-guard, executives said. Bank officials had recently raised $7.2 billion in capital from investors led by private-equity fund TPG, and they thought that was enough money to weather the worsening mortgage crisis.

Killinger declined to comment for this article, and WaMu executives close to him spoke only on condition of anonymity. A Treasury spokeswoman said it does not comment on Paulson's private conversations.

Last spring, JPMorgan offered up to $8 a share for WaMu, with the final price depending on how its loans performed. Instead, WaMu sold a partial stake to TPG. When WaMu was seized by federal regulators Sept. 25, most of its banking operations were sold to JPMorgan for $1.9 billion — and the company's stock was rendered worthless.

Killinger called Paulson in July to ask that the Treasury secretary use his influence with the Securities and Exchange Commission to add WaMu to a list of 19 financial institutions that were temporarily protected from a form of trading called "naked short selling" that can drive share prices artificially low.

Paulson refused to help Killinger get WaMu on the list.

WaMu did get on a subsequent list: In mid-September, panic in the stock market prompted the SEC to ban all short selling on 799 financial-institution stocks.

That ban came too late for the Seattle thrift, which failed the next week after a run on the bank that was precipitated by credit-rating agencies reducing WaMu's debt to junk-bond status. Its declining ratings were due partly to its falling stock price, which had been harmed by short selling.

The WaMu executives did not accuse Paulson of pushing WaMu to fail. Although the thrift's primary regulator, the Office of Thrift Supervision is a bureau of the Treasury, the head of the OTS reports to the president rather than to Paulson.

— Melissa Allison

CEO denounces corporate greed

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Here's a twist: Corporate greed denounced by a CEO.

Peter Rose of Expeditors International fired a sharp rhetorical broadside at unnamed fellow CEOs this past week as he issued the logistics company's financial results.

"The irony of reporting record quarterly profits in such tumultuous economic times is certainly not lost on us," he wrote in the Seattle-based company's earnings release.

"We have great sympathy for those who have been victimized by the greed, avarice and deliberate desertion of time-proven principles of sound financial management that caused this mess in the first place."

The outspoken Rose also assured stockholders that "there are no short-term, 'financially-engineered' profitability gimmicks in these numbers that will unravel over time because they lack economic substance."

There's no telling which corporate leaders the maverick CEO may have had in mind; he doesn't talk to reporters or financial analysts.

But he wouldn't have had to look far for inspiration. Rose runs Expeditors from a headquarters tower on Third Avenue. About three blocks away is the corporate headquarters tower of Washington Mutual.

Rose's statement praised the company's employees and its culture, then wrapped up:

"If a silver lining is to come out of all this turmoil, hopefully it will be a return to the realms of financial sanity where companies that manage prudently are differentiated from those that don't. ... Here at Expeditors, we don't need to go 'back to basics', because we've never left them."

— Rami Grunbaum

WaMu cleanup man wears many hats

And speaking of WaMu — the thrift's holding company, now in Chapter 11 after its banking operations were seized by regulators, is apparently running pretty lean these days. Although the restructuring expert hired last month to guide what remains of Washington Mutual Inc. through bankruptcy, William Kosturos, is paid hundreds of dollars an hour, he's also wearing a lot of hats.

His title, as given in regulatory filings: president, vice president, general auditor, controller, chief financial officer, treasurer, assistant secretary and chief restructuring officer.

— Rami Grunbaum

Comments? Send them to Rami Grunbaum: rgrunbaum@-

seattletimes.com or 206-464-8541

Copyright © 2008 The Seattle Times Company

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