This case integrates students' knowledge of accounting, financial analysis, and corporate strategy. Students assume the role of a financial analyst evaluating Washington Mutual's (WaMu's) financial condition and performance in March 2008, shortly after the release of their 2007 10-K. Students must determine how WaMu's strategy of investing in higher-margin, higher-risk products such as option-ARMs (adjustable rate mortgages) is revealed in the financial statements. Despite the potential for hindsight bias, this case gives students the opportunity to delve into excerpts from WaMu's 10-K and assess the riskiness of the bank's loan portfolio, including the adequacy of its accounting for loan losses. An article published in The Seattle Times, in which the author questioned the adequacy of WaMu's accounting for loan losses, inspired this case (Weil 2007).
Evaluating the adequacy of the provision and the allowance for loan losses is nontrivial as there are many factors to consider, such...
