By Ignoring Paulson’s Advice, Did Washington Mutual Make The Worst Possible Deal For Itself?

U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. warned former Washington Mutual Inc. (WAMUQ.PK) Chief Executive Officer Kerry Killinger to sell the thrift to JPMorgan Chase & Co. (JPM) two months before WaMu failed, both The Seattle Times and Bloomberg News reported.

According to the published reports, Paulson telephoned Killinger and told him that “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.” The Times report quoted a WaMu executive who was familiar with the incident, but didn’t disclose the source’s name.

Killinger told colleagues he was stunned by the call from the U.S. treasury secretary because WaMu had raised $7.2 billion in private equity, which top executives thought would be enough to navigate the financial crisis, the published reports state. JP Morgan offered $8 a share for WaMu earlier this year, and on Sept. 25 was able to acquire the Seattle-based thrift’s branch network for $1.9 billion - after WaMu had been seized by banking regulators, Bloomberg said.

That deal transformed JP Morgan Chase into the biggest U.S. bank, we reported. Subsequent to this deal, U.S. banks have been using government money from the $700 billion bailout fund to finance takeovers - and not to increase their lending, which would help jump-start the ailing U.S. economy, our investigative report showed.

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