WaMu investors rebel

Washington Mutual Inc. shareholders voted Tuesday to ask Chief Executive Kerry Killinger to give up his role as chairman, after the largest U.S. savings and loan was throttled by losses tied to the sinking housing market.

The Seattle-based thrift also announced the resignation of director Mary Pugh, who headed its finance committee and had been fiercely criticized for failing to protect Washington Mutual from exposure to sub-prime and other risky mortgages.

Washington Mutual also bowed to pressure from investors and governance experts in reversing a decision to ignore mortgage losses in awarding performance bonuses to top executives, such as Killinger and Chief Operating Officer Stephen Rotella.

WaMu posted a first-quarter loss of $1.14 billion, or $1.40 a share. That compared with a year-earlier profit of $784 million, or 86 cents. The company set aside $3.51 billion for loan losses, up from $1.53 billion in the fourth quarter.

The loss was in line with the company’s forecast April 8 and matched analysts’ average forecasts, according to Reuters Estimates. It came on top of a $1.87-billion loss the previous quarter. Killinger said the nation faced “the worst housing market downturn since the Great Depression.”

With a 51% majority, shareholders at WaMu’s annual meeting in Seattle voted in favor of a proposal by the SEIU Master Trust to ask the thrift’s board to appoint an independent director as chairman.

That vote was a rebuke to Killinger and his board, which has long been considered strongly loyal to him. A Washington Mutual spokeswoman said the thrift would consider the nonbinding proposal at its next board meeting.

All directors up for reelection won seats. Shareholders rejected a proposal to require a majority vote for directors to be seated, taking into account “withheld” votes. That proposal received 42% of the vote.

Killinger, who became CEO in 1990 and chairman the following year, adopted a pleading tone responding to criticism of angry shareholders who said management and directors should be accountable for the thrift’s troubles.

He was also faulted for raising $7 billion in new capital at a discount to market prices from investors. When Washington Mutual announced that investment April 8, it also set plans to cut as many as 3,000 jobs and slashed its dividend 93%.

“I’m not happy. This thing has hurt,” Killinger told shareholders. “I just want people to calm down.”

In February, Washington Mutual’s human resources committee, which sets executive pay, decided not to count mortgage-related credit losses and foreclosure costs in setting bonuses.

Killinger said the committee would instead “incorporate specific credit-related targets for which we are accountable” in setting executive bonuses. He said he backed the change.

Several proxy advisory services and investors such as CtW Investment Group had called on shareholders to withhold votes from one or more directors, including Pugh and James Stever, who leads the human resources committee. Stever was among the directors up for reelection.

Washington Mutual said its mortgage unit suffered a $572-million loss in the first quarter. Retail banking suffered a $1.04-billion loss, hurt by $2.3 billion set aside for bad loans. Profit fell 20% in credit cards to $199 million and declined 39% in commercial banking to $62 million.

The company, which operates about 2,261 branches, ended the quarter with $319.7 billion in assets.

Washington Mutual shares closed Tuesday up 31 cents, or 3%, at $10.66.