WaMu Boots Killinger; OTS Takes Action
The latest victim of the mortgage crisis -- no, not the GSEs -- is Washington Mutual (WM) CEO Kerry Killinger, who helped turn the Seattle-based company into the nation's largest thrift. WaMu said on Monday before market open that it has replaced the long-time CEO. The Wall Street Journal first reported on Killinger's departure Sunday evening, citing insiders at the company who said the board had told Killinger to retire or be forced out of the ailing bank. Perhaps even larger news than the new CEO, the bank also announced that it had entered into a Memorandum of Understanding with the Office of Thrift Supervision "concerning aspects of the bank's operations, principally in several areas of its risk management and compliance functions." No further details were provided, but the bank has said it has agreed to provide additional information to regulators over the company's business plan; WaMu said the plan does not (yet) require it to raise new capital, increase liquidity, or change its product mix. Of course, that may change once regulators get a better read on the thrift's business prospects. OTS sanctions notwithstanding, Killinger will be replaced by Alan Fishman, chairman of New York-based Meridian Capital Group, a commercial mortgage brokerage. Fishman also was president and chief operating officer of Philadelphia-based Sovereign Bancorp Inc. (SOV), the nation's second-largest thrift. WaMu lost $3.33 billion in the second quarter, as it significantly hiked its loan loss reserves by $3.74 billion to $8.46 billion; Killinger told investors at the time that no new dilutive capital raises would be forthcoming, committing instead to cost-cutting measures. His pending departure likely throws that commitment in doubt, a source at the company told HW Monday morning; other sources at the company, however, told the Journal Sunday evening that the bank still believes it can operate without pursuing fresh capital. Out of WaMu’s $231.1 billion loan portfolio, it’s $52.9 billion in option ARMs and another $62.5 billion in home equity loans and lines of credit that are drawing the most attention from analysts and investors. Total nonperforming assets at the Seattle-based bank jumped to $11.2 billion at the end of the second quarter, up 22 percent from the first quarter and nearly three times the NPAs recorded one year earlier. It's also worth noting that the bank has begun offering comparatively very high CD interest rates in recent weeks, a move typically seen as a last-ditch effort by a bank to bring in deposits, a core source of capital. Private-equity investor TPG put $7 billion into the thrift in April, but agreed not to influence management in a consent order with the Office of Thrift Supervision, who had to approve the investment; it's not clear if TPG exerted any influence in ousting Killinger, but TPG founder and managing director David Bonderman joined the board in April as part of the investment. (Which means it would be awfully hard for Bonderman not have had at least some influence on the process.) For more information, visit http://www.wamu.com. Disclosure: The author held no positions in WM or SOV when this story was published; indirect holdings may exist via mutual fund investments, as well. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.