WaMu's Kerry Killinger ousted; new CEO is Alan Fishman, East Coast financial executive

Kerry Killinger has been forced out as longtime chief executive of Washington Mutual because of its mounting losses, people briefed on the matter said Sunday night.

Killinger's departure ends an 18-year run in which he built the Seattle-based bank into one of the nation's biggest financial institutions through acquisitions. But his failure to properly integrate those deals and manage the burgeoning losses from subprime mortgages and credit-card loans proved to be his undoing.

Killinger, 59, is being replaced by Alan Fishman, 62, former CEO of Independence Community Bank, a New York-based lender sold two years ago to Sovereign Bancorp. Fishman was widely praised for getting a top-dollar price for Independence.

Washington Mutual's new chairman, Stephen Frank, informed Killinger on Thursday that the board had concluded that he should retire, according to a person briefed on the matter. An announcement is due this morning before the markets open.

A WaMu spokeswoman reached late Sunday declined to comment.

Killinger is the latest CEO in the financial-services industry to lose his job as the credit crisis has worsened. Earlier Sunday, the heads of Fannie Mae and Freddie Mac were forced out after the Treasury Department orchestrated a takeover of the companies. The CEOs of Citigroup, Merrill Lynch, Wachovia and Bear Stearns have also been ousted.

WaMu has been one of the lenders hit hardest by the downturn in the housing market. It has one of the biggest portfolios of so-called pay-option mortgages and had long focused its operations on lower-income urban borrowers. Losses at the bank have been devastating.

There appears to be no quick fix. In April, Killinger turned to TPG and several other private equity investors after it became clear WaMu needed capital. The deal allowed Killinger to keep his job, but many observers said the bank would need another infusion.

JPMorgan had previously submitted a bid that would have led to his ouster.

Since then, the picture has gotten more bleak. In the second quarter, WaMu posted its biggest loss ever. Its stock price fell to just over $3 in mid-July, roughly 65 percent less than the $8.75-a-share price TPG paid in its transaction.

WaMu has been aggressively cutting expenses, announcing 1,200 layoffs in June, including 260 at its downtown Seattle headquarters, on top of more than 3,500 job cuts earlier in the year.

Killinger stepped down as chairman in June after investors voted to remove him. That change meant Killinger no longer dominated WaMu's board in the way he had for most of the past two decades — a period during which the company grew into one of the nation's leading retail banks but also lowered lending standards and took on massive amounts of troubled mortgages.

The change also signaled the board was taking a more hands-on role. Several analysts speculated at the time that Killinger's ouster as CEO could happen before 2009.

Lee Lannoye, a retired WaMu executive vice president and chief credit officer, said Sunday that while Killinger was WaMu's CEO, he wasn't directly responsible for the thrift's downfall.

Killinger stepped back from day-to-day management of the company years ago, said Lannoye. It was Chief Operating Officer Steve Rotella who directed WaMu's move into subprime mortgages, said Lannoye. "Rotella was the one who was running the bank. He's the one who should have said no and he didn't."

Killinger's successor still will have to clean house, Lannoye said: "This isn't going to solve all their problems."

Killinger could walk away with an exit package worth as much as $23.5 million, according to a James F. Reda & Associates analysis.

Information from Seattle Times reporters Eric Pryne and Angel Gonzalez and Seattle Times archives is included in this report.