WaMu Reports $1.14 Billion Loss, Resignation of Criticized Director

WaMu Reports $1.14 Billion Loss, Resignation of Criticized Director

By RICK BROOKS and ANDREW EDWARDS
April 15, 2008 6:19 p.m.

Washington Mutual Inc., which has been rocked by the meltdown in the housing market, reported Tuesday a first-quarter loss of $1.14 billion amid increased provisions for credit losses and the resignation of a controversial board director.

Mary E. Pugh, who has been fiercely criticized by some shareholders of the struggling thrift, has resigned from the board, CEO Kerry Killinger announced at the Seattle-based company's shareholder meeting.

Mary Pugh stepped down from Washington Mutual's board Tuesday.

Ms. Pugh, 48 years old, headed the finance committee of WaMu's board. She is president and chief executive of Pugh Capital Management Inc., a fixed-income money-management firm.
Several investor groups had been urging other WaMu shareholders to vote against the re-election of Ms. Pugh at the annual meeting. Critics claim that she failed to shield WaMu from having too much exposure to risky mortgages, including subprime loans and adjustable-rate mortgages that have come back to haunt the company.

Mr. Killinger also announced that "credit-related targets" would be included among the factors weighed by WaMu directors when determining executive bonuses for 2008. The move appears aimed at defusing criticism of a compensation program disclosed in early March that excluded some costs tied to mortgage losses and foreclosures from cash bonuses.

At the shareholder meeting, Mr. Killinger said he had been "advised" by WaMu directors Stephen E. Frank and James H. Stever that the board's human-resources committee will consider "specific credit-related targets for which we will be held accountable."
"I strongly support this action," Mr. Killinger told shareholders.

The same committee had approved the previous compensation targets, which essentially shielded the pay of Mr. Killinger and more than 100 other executives from the continuing mortgage fallout.

WaMu on Tuesday also announced the closing of the $7 billion cash injection it announced last week. Shares rose in after-hours trading.

"By issuing $7 billion of additional capital, we have taken decisive actions to withstand this period of unprecedented credit losses, while maintaining strong liquidity," Mr. Killinger said.

The thrift's $1.14 billion first-quarter loss came to $1.40 a share, which compares with year-earlier net income of $784 million, or 86 cents a share. Last week, WaMu issued preliminary figures that were much worse than analysts expected at the time.

Revenue grew 3.4% to $3.74 billion.

WaMu's provision for credit losses soared to $3.51 billion from $234 million a year earlier. Net charge-offs, loans it doesn't think are collectable, rose to $1.37 billion from $737 million a year earlier. Non-performing assets rose to 2.87% of total assets from 1.02%.

The company also recorded a $216 trading loss "reflecting continued illiquidity in the capital markets," compared with its $267 million loss in the fourth quarter.
The company's net interest margin, a measure of the difference between borrowing costs and lending rates, grew to 3.05% from 2.8%.

Last week WaMu, which had been seen as a take-over target, announced a $7 billion cash injection from private-equity firm TPG and other investors, which agreed to buy shares and securities at a substantial discount. In addition to shares, TPG will also get two seats on WaMu's board. Simultaneously, the company cut its dividend to 1 cent from 15 cents to boost its capital ratio.

The moves were only the latest for WaMu -- which had already cut its dividend, eliminated thousands of jobs and sold $3.7 billion in preferred shares -- and illustrates the depths of the company's current woes. WaMu has made a series of strategic mistakes that put the company on increasingly shaky footing as credit markets have deteriorated. Mr. Killinger's biggest bet was on the subprime market, as the savings and loan embraced products such as adjustable-rate mortgages and low-documentation loans for borrowers with relatively poor credit to expand its market share.

Shareholders also approved a proposal to separate the posts of WaMu chairman and CEO. The proposal had been opposed by management, but won 51% of shareholder votes cast.

The proposal, submitted by the SEIU Master Trust, calls for WaMu to appoint a director who is independent of the company as chairman of the board in order to "ensure proper oversight of executives and to increase accountability by executive management to the entire Board."

It wasn't immediately clear what the next step is for the proposal or how it would be implemented. A WaMu spokesman couldn't immediately be reached for comment. Mr. Killinger currently holds both posts.

Shareholders also approved the re-election of the 12 directors standing for election.

Washington Mutual's shares closed Tuesday at $10.66. Shares recently changed hands at $10.85 in after-hours trading. Washington Mutual's shares are off 73% from a year ago, trading at levels not seen since the early 1990s.