Cause of WaMu failure is under investigation

Washington Mutual Inc., the bankrupt thrift, is under investigation by federal authorities examining what caused the bank's failure, which led to its banking operations being sold to JPMorgan Chase & Co. last month.

U.S. Attorney Jeffrey Sullivan in Seattle said his office created a task force working with investigators from the Federal Bureau of Investigation, the Federal Deposit Insurance Corp., the Securities and Exchange Commission and the Internal Revenue Service to investigate what led bank regulators to close WaMu, according to an e-mailed statement.

"Due to the intense public interest in the failure of Washington Mutual, I want to assure our community that federal law enforcement is examining activities at the bank to determine if any federal laws were violated," Sullivan said in the statement.

JPMorgan, the largest U.S. bank by market value, acquired WaMu's branch network Sept. 25 for $1.9 billion after the Seattle-based thrift was seized in the largest U.S. bank failure in history. The holding company filed for bankruptcy two days later.

WaMu customers withdrew $16.7 billion from Sept. 16 until it was seized, leaving the bank unsound, according to the Office of Thrift Supervision.

JPMorgan spokesman Tom Kelly declined to comment.

WaMu lost $6.3 billion from October 2007 through June because of defaults on home loans, mostly subprime and option adjustable-rate mortgages, leading to a 95 percent decline in the stock.

The company had estimated losses of $19 billion over the next 2 1/2 years, disclosing Sept. 8 that it was under increased regulatory scrutiny — the same day it fired Chief Executive Officer Kerry Killinger after 18 years as Washington Mutual's chief executive officer.

Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc. and American International Group Inc. are among 26 companies being investigated by the FBI in its probe of the collapse of the subprime-mortgage market that led the Bush administration to ask for Congressional approval of a $700 billion bailout for the financial industry.

Emily Langlie, a spokeswoman for Sullivan, declined to say whether Washington Mutual, or the task force, are part of the same FBI probe.