Marketing Article: Summary
It is a matter of fact that financial sphere, especially banking sphere, is very important to economic development of the country and problems in one sphere leads to deterioration in other spheres. The article “WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History” by Sidel, Enrich and Fitzpatrick provides analysis of main reasons which has led to the largest bank failure in the United States, as well as discusses what impact such failure will have on the overall performance of the baking system. Actually, the article contributes marketing and management fields as the authors discuss selling conditions, impact of the sold out and consequences of inabilities to ensure banking stability. WaMu was founded in 1889 and with years it appeared to be a national mortgage-leading and consumer-leading giant. The Chief Executive Officer in the 1990s was Kerry Killinger, but he made a series of missteps. Actually, Killinger promoted aggressive expansion in too many markets.
It is Killinger who steered the giant into sub-prime mortgages, and when he discovered that the giant was lending to too many unqualified borrowers it was too late to change something. As a result, WaMu has failed. The central argument of the article is that “the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co”. (2008) It seems that WaMu sold out is perfectly developed marketing strategy with the purpose to expand franchise and to increase nationwide deposits. Nevertheless, we see that Morgan agrees to pay money to the US government for banking operations of WaMu. Morgan mentions that loan portfolio has more than $30 billion in assets. Of course, the full cost is much higher as Morgan is planning to raise new capital up to $8 billion. The positive moment is that WaMu depositors will be allowed to access their cash, but the negative moment is that “holders of more than $30 billion in debt and preferred stock will likely see little if any recovery”. (2008) As a result of WaMu sold out Morgan will become the first in nationwide deposits and he will be able to significantly expand franchise. Such seizure is claimed to be one of the most impressive and influential for the country’s banking system. Among the financial giants having sold out to the government of stronger firms are the following: Fannie Mae and Freddie Mac, Merrill Lynch & Co, American International Group Inc, and Lehman Brothers Holdings Inc. WaMu has failed to succeed at financial market and such failure is the largest bank bust in America. (2008)
The authors admit that no bank was willing to but WaMu until it failure and it is understandable that stronger firms and banks were not willing to invest in hardly profitable WaMu. But after WaMu failure a number of banks shoed such desire and the result is that small and big banks were struggling for WaMu. It is necessary to underline that WaMu has been struggling for a long time before is failure, but regulators tried to shut it down faster than other failing banks in the country. The authors note that when regulatory agencies prepare bank taking over, they have to solicit bids on Wednesday or Tuesday and then on Friday to seize. Before seizure the failing bank has to close its branches. In some cases the regulatory agencies may wait till the next week for stepping in, but they were not willing to wait in case of WaMu and the question appears: why. Maybe, it was a well-developed marketing plan or something else, but it goes without saying that WaMu sold out was profitable for many small and big banks. Regulatory agency, in WaMu case, set the deadline on Wednesday evening for interested parties. And in twenty-four hours regulatory agency were preparing to seizure WaMu. The authors write that WaMu was pressed and it asked for “the meeting because it had received conflicting information from the two agencies”. (2008) Two interested groups were in tension, but the FDIC is claimed to be more aggressive in attitudes towards WaMu and its future. WaMu is left with insufficient liquidity and it means that bank is unable to meet obligations and debts. Further, it means that WaMu is unable to transact its business because of unsound and unsafe condition. WaMu was closed on Thursday and the FDIC was appointed as receiver. During the bidding process the decision was to sell WaMu’s banking operations to Morgan. The OTS announced that the change “will have no impact on the bank’s depositors or other customers”. (2008) WaMu’s branches will operate as usual on Friday morning and the whole business will remain uninterrupted. Downturn in US housing market has negatively affected the performance of mortgage portfolio as WaMu’s mortgages have lost and stock prices have plunged. Therefore WaMu’s take over is seen as a huge blow for private-equity firm. TPG spokesman said that they “are dissatisfied with the loss to our partners from our investment in Washington Mutual…the unprecedented turmoil in global financial markets and resulting macro crisis of confidence has radically changed the dynamics for all financial institutions, and led to widespread losses among investors throughout the sector”. (2008) Morgan is ranked as the fourth-largest bank being ranked below Bank of America, Wachovia Corp., and Walls Fargo. The deal is very profitable for Morgan as it gives an excellent opportunity to emerge in tow states, where Morgan was still non-existent. In particular, Morgan sees an opportunity to expand to California and Florida. Of course, such marketing strategy will bear fruits as the bank will attract new customers and will increase its earnings. It is known that WaMu has about 700 branches in California and more than 200 branches in Florida.
It is a matter of fact that such WaMu’s take over has direct impact on the overall performance of US banking system as some banks will benefit, whereas other will loose. Marketing strategies are of great importance in highly tough business environment as they guide business in necessary direction, identify whether new ideas are worthy of attention and so on. We see that Morgan has benefited from taking over WaMu’s banking operations as his bank has received an excellent opportunity to expand business in California and Florida. Therefore, the article is directly related to marketing field as the author discusses why Morgan decided to take over WaMu and what benefits Morgan Bank will receive. Marketing field is associated with working out promoting and selling strategies with the purpose to increase sales, to attract new customers, to attract publicity and to cut costs. All these issues are presented in the article as WaMu was sold out and Morgan has had an ability to expand business and to attract new customers. The primary reason is, of course, income increase and promotion of bank services. Morgan has invested millions into new branches allowing the customers from all states to make deposits in New York branch.
Enrich, D., Fitzpatrick, D., ; Sidel, R. (2008). WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History. Wall Street Journal, September 26. Available also at http://online.wsj.com/article/SB122238415586576687.html