WaMu shareholders show anger, CEO Killinger asks for patience

Visibly shaken by an outpouring of investor anger, Washington Mutual Chief Executive Kerry Killinger pleaded with shareholders and employees who packed Benaroya Hall on Tuesday to give his management team a chance to turn things around.

"I understand it. It hurts," Killinger said. "No constituency is happy. I'm not happy. This thing has hurt."

But even before WaMu announced another massive loss and warned there may be as much as $19 billion in more bad loans on its books, some investors were in no mood for patience.

"You're the owners, not them — they're employees," Alan Henry, a retired broadcast executive from St. Petersburg, Fla., told his fellow shareholders. "Take the damn company back!"

Seattle-based WaMu, until recently one of the nation's top home lenders, has been rocked by the collapse of the national housing boom and the credit-market turmoil that followed.

On Tuesday, the company reported a first-quarter loss of $1.14 billion, on top of the $1.9 billion lost in the final quarter of 2007.

To save money, the company is cutting thousands of jobs and has sliced its quarterly dividend to just 1 cent a share. It also raised more than $7 billion in new capital by, effectively, selling half of itself at a discounted price to a group of institutional investors.

"I know it's tough," Killinger said at the meeting. "Nobody likes a penny dividend. Nobody likes the stock price where it is. Nobody likes to raise capital now. I'd never do any of that, except we have to."

But WaMu, he continued, "has the capital, the passion, the commitment to ... get through this. We're going to have terrific days ahead of us. I just want people to calm down, have a little faith."

For many shareholders, however, their faith had clearly run out. Killinger was jeered several times — almost unheard-of in the staid, by-the-book world of corporate meetings — and several investors demanded that he, other executives and directors quit to take responsibility for the thrift's troubles.

Henry accused Killinger of opting for the investment led by private-equity firm TPG, rather than a reported buyout offer from JPMorgan Chase, simply to preserve his job.

Then, addressing Killinger directly, Henry said: "What you've got to do is what some real men do — real men. When you face a situation like this, you stand down. I ask you, out of good judgment, to stand down."

A man who identified himself as a WaMu employee and shareholder laid the blame for the company's troubles squarely on Stephen Rotella, president and chief operating officer since 2005.

The man, whose name could not be made out clearly, said that under Rotella's leadership, WaMu loan consultants were paid more for writing subprime mortgages and so-called "option ARMs" with ultra-low teaser rates than for writing safer, fixed-rate loans.

Those loans, along with home-equity loans, now are going sour at a faster clip than the rest of WaMu's loan portfolio.

"This man [Rotella] has driven the company to the edge of bankruptcy and he should be fired, and his bonuses should be taken back from him," the man said, his voice quavering with emotion.

The sometimes raucous crowd, which filled the 2,500-seat auditorium almost to capacity, was split between supporters and opponents of WaMu's management. Though the critics were frequently applauded, so were people like Amber Gravett, who rose to defend Killinger and his team.

"I have seen Kerry fiercely protect the independence of Washington Mutual from gobbler-up banks like Chase," said Gravett, who said she is an employee and shareholder. "I'm probably going to get booed for this, but I think, Kerry and Steve, you're doing a wonderful job."

Several labor-backed groups and shareholder advisory firms had called on shareholders to reject some of the 13 board candidates up for election. One of those targeted, Finance Committee Chairwoman Mary Pugh, resigned before Tuesday morning's board meeting, Killinger said.

He also announced, at the start of the meeting, another concession to shareholder criticism.

WaMu's 2008 executive bonus plan has been roundly denounced for minimizing the impact of soured real-estate loans and foreclosure expenses. Many observers saw that as an attempt to shield executive bonuses from the impact of the mortgage meltdown.

Killinger said the plan will be revised to include "specific credit-related targets for which we will be held accountable."

Based on preliminary vote totals, Killinger said all of the directors (except Pugh) had retained their seats.

A nonbinding shareholder proposal — opposed by management — to separate the positions of chairman and chief executive also appeared to be passing narrowly. Killinger holds both posts.

The meeting somewhat overshadowed WaMu's quarterly financial results, which the company had pre-announced last week.

As expected, WaMu lost $1.40 a share, versus a profit of 86 cents a share a year earlier. Nonperforming assets — delinquent loans and foreclosures — rose to $9.2 billion, or 2.87 percent of total assets — nearly triple that of a year ago.

In a conference call with analysts and investors, Chief Financial Officer Thomas Casey said that depending on how quickly the housing market stabilizes, WaMu's "best guess" is $12 billion to $19 billion of loans on WaMu's books will go bad and have to be written off over the next three to four years.

That means that, in addition to the $4.7 billion WaMu has banked for future loan losses, the company will have to set aside $8 billion to $15 billion more. Those loan-loss provisions should peak this year, then decline in 2009, Casey said.

The report showed other worrisome trends. Net interest income at WaMu's retail-banking unit, on which the company is pinning much of its hopes for recovery, slipped a bit as the economy weakened.

Credit-card losses grew to 9.32 percent of WaMu's overall card portfolio, from 6.9 percent in the fourth quarter. Rotella said the credit-card losses should average 9.5 to 10.5 percent the rest of this year.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com