Colin Barr

Following the money in banking, economics, and Washington

Denial dies hard at WaMu

March 17, 2011: 4:34 PM ET

The guys who got rich running Washington Mutual into the ground are still claiming they had nothing to do with its failure.

The Federal Deposit Insurance Corp. sued the failed thrift's top officers Thursday, accusing them of managing the big bank negligently and hiding assets from their creditors. It seeks $900 million in damages from the three, led by former CEO Kerry Killinger (right) and operating chief Stephen Rotella. Amusingly, their wives are named as defendants too.

Will defend himself vigorously, no doubt

The FDIC points out the many inconvenient facts leading up to WaMu's Sept. 25, 2008, failure, which is the biggest U.S. bank collapse by a factor of 10. It is a by-the-numbers exercise -- the three execs made $95 million between 2005 and 2008, for instance, largely by stocking up on risky loans -- but it doesn't yield a result the executives are happy with.

The agency notes how Killinger and Rotella oversaw a massive expansion of risky lending without bothering to assess just how badly that might end, and it points out how they ignored the pleas of the odd responsible banker to ease up on the gas pedal.

Needless to say this is not how Killinger, who made $25 million the year the bank imploded, recalls his heroic tenure. You may think of him as the guy who kept dancing well after the music stopped, then sold out his longtime shareholders for a song because he could.

But he remembers a fearless executive persevering in the face of unbearable federal meddling. Testifying before the Senate last spring, Killinger stopped just short of claiming the bank's failure was part of a government conspiracy to hand more money to the biggest banks. JPMorgan (JPM) bought WaMu for a song after regulators closed it down.

His statement to the Wall Street Journal offers a variation on that theme, which is to finger the regulators who were standing there as the bank went into its death throes. The FDIC and others "had offices on the premises '24/7'" by the time WaMu's demise was in train, he said.

That's silly enough, of course. Yes, regulators whiffed on this and many other softballs tossed their way during the credit bubble, but they didn't walk off with eight-digit sums while leaving shareholders with nothing.

Even more absurd is the posturing of Rotella, who left JPMorgan in 2004 to join WaMu in a shift that raised some eyebrows. While Killinger can at least claim he was running WaMu during the 1990s and early 2000s when things were going well, Rotella was there pretty much only for the descent into lending insanity.

So how does he respond to the FDIC's claims?

"It is almost beyond belief that the FDIC would take action against an effective, hard working bank manager who performed well under extraordinary conditions in an effort to save an important financial institution," he said, the WSJ reports. Rotella adds that the FDIC investigation "lacks credibility."

Takes one to know one, you might almost say.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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