Kerry K. Killinger built Washington Mutual Inc. from a small Seattle company into one of the nation's largest consumer banks and mortgage lenders, only to see that record tarnished in the past year as the mortgage finance crisis and its own missteps produced billion-dollar quarterly losses, a stock price down 88 percent from a year ago and lingering questions about its long-term viability as an independent company.
As of Thursday, the board of directors apparently had enough.
Killinger, 59, has been ousted as chief executive of the company he has run since 1990, The Wall Street Journal reported on its Web site Sunday night. The company did not confirm the report.
The Journal said Killinger will be succeeded by Alan Fishman, who has a lengthy résumé in the financial-services industry but is largely unknown in Seattle. Fishman is currently chairman of Meridian Capital Group, a New York-based commercial mortgage broker. Until last year he was president of Sovereign Bancorp, based in eastern Pennsylvania.
Killinger has been synonymous with Washington Mutual, which, when he took over, wasn't even a very significant player in banking in the Puget Sound region. But through a series of acquisitions, Killinger built WaMu's presence on the West Coast, then extended its reach across the country. Along the way, WaMu emphasized its difference from conventional banks through free checking accounts, quirky advertising and branches designed to look more like Starbucks coffee stores.
For much of Killinger's tenure, the strategy worked. But the model began breaking down in recent years. WaMu, which had a record of relatively pain-free integrations of its acquisitions compared with others in the industry, stumbled on several, producing major customer service problems, particularly in the handling of mortgage accounts. WaMu was also caught poorly hedged when interest rates shifted. Both missteps caught the attention of the national business press.
But the biggest problem for WaMu was the national souring of the residential mortgage market, with delinquencies, defaults and foreclosures climbing.
Killinger had argued that the problems were industrywide, and that WaMu had taken steps to deal with an expected downturn, but no one had anticipated just how bad it would be.
But critics charged WaMu put itself in an especially difficult position by its acquisition of a mortgage company that specializes in loans to people with poor credit histories. That segment, known as the subprime market, was the first in which problems appeared. WaMu also loaded up on other risky types of lending, such as option ARMs (adjustable rate mortgages), which allow borrowers to set their own payment, even if the result is that the principal actually grows from month to month. In addition, WaMu's mortgage business is concentrated in hard-hit states such as California and Florida.
Weakness also is starting to show up in WaMu's portfolio of more conventional home loans, as well as in home equity lines of credit and credit cards.
WaMu found itself having to take dramatic measures to cope, including laying off thousands of employees in several waves (another round is expected in mid-September), slashing the quarterly common stock dividend from 56 cents a share to a penny, closing all of its mortgage loan offices and stuffing billions of dollars into loan-loss reserves. The company posted three consecutive quarters of losses of more than $1 billion. (The June quarter loss was $3.3 billion.)
The drain on WaMu's capital produced by mounting loan losses -- the company has said those could amount to as much as $19 billion in the coming years -- forced WaMu to raise $7.2 billion in capital in April through the sale of stock at $8.75 a share to a private investment group. WaMu stock, which already had tumbled from more than $44 a share in mid-2007, kept sliding to less than $4 a share, although it has climbed back slightly above $4 in recent weeks.
Shareholders unhappy with the performance of management and the board of directors have been pushing for changes to both. At a raucous annual shareholders' meeting in April, at which some called for Killinger's resignation, they approved a measure to split the jobs of chairman and chief executive, both of which he had held. While the vote was advisory, the company did separate the titles, naming former utility executive Stephen Frank as chairman.
As recently as the quarterly earnings release in July, Killinger said the board supported his plan for a turnaround.
Killinger's successor joined Sovereign when it acquired the bank he was running, Independence Community Bank in Brooklyn. Mike Armstrong, who was Independence's public relations director and continues as a consultant to Sovereign, said Fishman was "enormously successful" in his tenure there, producing growth and profitability.
Fishman also was extensively involved in business, community and philanthropic activities in Brooklyn and New York, Armstrong added. "He's a rare combination of someone who believes strongly in community and tying business to the community" by being personally involved and encouraging those who work for him to do likewise.
But Fishman will have his hands full with WaMu and questions about its long-term survival. While Killinger and other executives maintain that the capital raised in April, and an earlier round in late 2007, will be enough to tide WaMu through the worst of the loan losses, some analysts have said it will need more -- which in turn raises questions about whether investors will be willing to put up more money.
There's also the question of whether WaMu will survive as an independent. When WaMu was looking for more capital, JPMorgan Chase made a bid for the company, reportedly at $8 a share. WaMu elected to raise capital and stay independent, but some investors have said it should have taken the deal.
Takeover speculation has long hovered over WaMu, even when it was healthy, but now the questions include who would want it, at what price and whether anyone is in shape to take on the project of righting it. What might lure a buyer is WaMu's national network of more than 2,000 retail branches and what the company contends is a growing core of retail accounts.
The Journal said Fishman will be paid a bonus of $10 million, including a $2.5 million performance-based stock award, in addition to the $1 million salary, the base salary that Killinger received.
Killinger will depart the company under the terms of his contract, with no extra severance payment, the paper said.