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Struggling Washington Mutual Replaces CEO Killinger

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The Associated Press

The Tampa Tribune

Published: September 9, 2008

NEW YORK - Washington Mutual Inc., ravaged by losses from sour mortgages, replaced Kerry Killinger as chief executive of the nation's largest savings and loan on Monday, adding him to the growing list of banking bosses ousted by their boards. Its shares sank almost 22 percent.

Killinger, 59, is being replaced by Alan H. Fishman, the former president and chief operating officer of Sovereign Bank and president and CEO of Independence Community Bank.

Also Monday, WaMu said that it has entered into a memorandum of understanding with the Office of Thrift Supervision concerning aspects of its operations. WaMu has committed to provide the OTS with an updated, multiyear business plan and forecast for its earnings, asset quality, capital and business segment performance. The plan will not require the company to raise capital or increase liquidity, WaMu said.
WaMu shares dropped 92 cents, or 21.8 percent, to $3.35 in afternoon trading. Shares have fallen 90 percent since early July of last year, right before the rapid erosion in the credit markets began.

Battered by rising mortgage delinquencies and defaults, and by the sinking value of its mortgage portfolio, WaMu has lost nearly 70 percent of its market value this year.

Killinger, who was stripped of his chairman title in June, became CEO of the Seattle-based thrift in 1990 and built WaMu into one of the country's largest banks. But with a heavy focus on subprime and option adjustable-rate mortgages - the types of mortgages at the heart of the housing bust - WaMu's losses began to mount and its shares plummeted, sparking an outcry from shareholders.

The board's splitting of the CEO and chairman roles in June was an effort, at the urging of shareholders, to improve corporate governance. At WaMu's shareholder meeting in April, a nonbinding resolution urging the installation of a nonemployee as board chairman passed with 51.5 percent of the votes.

But Killinger - who received compensation valued at $14.4 million in 2007 - held on to his post as CEO, even as the list of other top banking executives shown the door continued to grow.

Killinger's exit follows that of Wachovia Corp. CEO Ken Thompson, Merrill Lynch & Co.'s Stanley O'Neal and Citigroup Inc.'s Charles Prince.

The 62-year-old Fishman became president and CEO of Brooklyn, N.Y.-based Independence in 2001. He later served as president and chief operating officer of Sovereign Bank after the Philadelphia-based bank bought Independence for $3.6 billion in cash in 2006.

Most recently, Fishman has served as chairman of commercial mortgage brokerage Meridian Capital Group.

Some analysts believe Fishman's relationship with Meridian could prove to be an important one.

"While it is still too early to tell which direction Mr. Fishman intends to take Washington Mutual, we would not rule out an investment in Meridian if Washington Mutual remains an independent company past this credit cycle," wrote Fox-Pitt Kelton analyst Albert Savastano in a note to clients.

While the management change may be long overdue, few are convinced it will prove a quick fix to the bank's ongoing problems.

WaMu's troubles largely stem from rising delinquencies among its "option" adjustable-rate mortgage loans.

In July, the bank reported a $3 billion second-quarter loss - the biggest quarterly loss in its history - as it boosted its loss reserves to more than $8 billion to cover bad loans.

The company expects cumulative losses in its residential mortgage portfolio to total $19 billion, the high end of previous guidance, and has said 2008 will be the peak year for provisioning.

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