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

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On the Economy

WaMu's loyal shareholders left holding the empty bag

Washington Mutual suffered an ugly death, leaving thousands without jobs, homeowners facing foreclosure, a civic crater in Seattle and a 100-year-old institution flushed away by miscalculation and greed. But perhaps nobody is angrier than shareholders, who were wiped out when federal regulators arranged the sale of the thrift's assets to JPMorgan Chase for $1.9 billion.

Special to The Seattle Times

Some companies pass away loved. For shareholders, the wake can be positively giddy.

Take Safeco, whose stockholders received $68.25 per share in cash, a 50 percent premium on the stock price the day before the sale to Liberty Mutual was announced.

Washington Mutual suffered an ugly death, leaving thousands without jobs, homeowners facing foreclosure, a civic crater in Seattle and a 100-year-old institution flushed away by miscalculation and greed.

It left the ignominy of being the nation's largest bank failure, with a trail of lawsuits and investigations. It betrayed customers whose families had banked there for generations.

But perhaps nobody is angrier than shareholders, who were wiped out when federal regulators arranged the sale of the thrift's assets to JPMorgan Chase for $1.9 billion.

That this all happened amid the worst financial crisis since the Great Depression comforts not at all. Even shareholders at the toxic investment bank Bear Stearns, whose collapse rocked Wall Street, walked away with $10 a share from the ubiquitous JPMorgan.

Shareholders hurt by WaMu's collapse were led by the highfliers at TPG Capital, which headed a group of investors that sank $7.2 billion into the nation's largest thrift in April, assuming the worst of the subprime debacle was past and, apparently, reassured by WaMu management that it could turn the company around.

Mutual funds and other institutional investors, which ultimately include thousands of individual shareholders, also lost big. Among them were such well-known outfits as Vanguard Windsor II fund and American Funds.

Many Washington Mutual workers already either unemployed or nervously awaiting the JPMorgan ax also lost the value of their holdings.

WaMu employees had the option of receiving company stock as part of their 401(k) plans. And the company aggressively rewarded many employees with stock options for performance. Even if these workers are kept on by Chase, they won't get anything for their WaMu shares.

One employee, who spoke on condition his name not be used because he was still working for WaMu, said he knew of veterans who had accumulated stock for as much as 25 years and never sold it. They were wiped out.

Few are talking openly about it, this person told me. Many were frugal, loyal and proud of this company and were trying to build something that would last for another 100 years.

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The pain is also especially personal for people who bought and held Washington Mutual shares out of regional loyalty.

Judy Bumbarger-Enright, a school librarian in Vancouver, Wash., put $1,000 of WaMu stock into a Roth IRA in 2000, watching it grow to $4,000 before the shares began their fateful plunge. It was a small part of her nest egg but it mattered.

"I bought it because of its Northwest roots and because I felt they delivered a superior product and service," she said.

WaMu and Microsoft were the only two individual stocks she ever purchased.

"I thought they were a good solid company that had been around for a long time," she said. As the thrift's troubles worsened, "I was just dumbfounded that nothing was being fixed."

WaMu had 56,738 shareholders of record in its most recent 10-K filing with the Securities and Exchange Commission. That's small compared with Microsoft's nearly 146,000, but the Redmond software giant is one of the most widely held stocks in the world.

Although WaMu went public in 1983, its shares took off during the housing boom when they seemed like a surefire growth stock.

This attracted no shortage of speculators, but also those like Bumbarger-Enright, who invested old school: buying and holding, as true owners of a company they believed in.

Many shareholders are too embarrassed by their losses to speak for the record. One, who did not want to be identified, said he lost $250,000.

"The drop from $40 to $3 is unfortunate, but the writing was on the wall about that. Plus, that is part of the risk of investing. The part that neither I nor others can accept is the drop from about $3 to zero, plus the fact that the bank was dismembered rather than sold whole is shocking."

It's this seemingly sweetheart deal between JPMorgan Chase and regulators, consummated suddenly and despite weeks of reassurances from WaMu, that rankles many. It has also spawned a cottage industry of conspiracy theories.

For one thing, the assets purchased by JPMorgan still held value. Yet shareholders are also appalled by what they see as incompetence, and worse, by executives in their failure to protect the company.

They have mobilized to write letters to regulators and legislators. They've joined with disgruntled customers and mortgage holders to set up Web sites, including a site on the social-networking site Facebook and another whose name is unsuitable for this newspaper.

The Ontario Teachers Pension Plan Board of Canada, a major shareholder, has filed a securities class-action complaint against Washington Mutual and some officers, including former Chief Executive Kerry Killinger.

The complaint alleges the company moved away from its traditional, low-risk roots while embracing risky subprime loans and secretly abandoning proper standards.

Helping stoke shareholder rage is that top executives came away with tens of millions of dollars in compensation even as common shares were being destroyed.

As top executives gave reassuring statements, Washington Mutual's market capitalization dropped by 85 percent from January through September.

Yet justice, however it's measured, may be hard to come by.

JPMorgan Chase crafted a deal where it bought only certain assets of Washington Mutual, not the holding company itself, thus limiting its liability.

Lawsuits can take years to settle. And the machinations of the government's $1 trillion rescue remain opaque.

Bumbarger-Enright has nothing good to say about Killinger, but, at 59 and hoping to retire someday, something else makes her angrier.

"This isn't just about losing Washington Mutual. This is about how they and the rest of them destroyed my portfolio. They brought on this financial crisis."

Her nest egg is down 40 percent.

She's got a lot of company.

Jon Talton at jtalton@seattletimes.com

Copyright © 2008 The Seattle Times Company

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About On the Economy
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest
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