WaMu CEO Made Big Mistakes-Shareholder

By Herbert Lash

NEW YORK (Reuters) - Washington Mutual (WM.N) Chief Executive Kerry Killinger has made some big mistakes and ranks among the major executives who have mismanaged their companies, one of the troubled mortgage lender's largest investors said on Tuesday.

"He's up there with the senior executives who steered these major institutions the wrong way," said David Dreman, chairman and chief investment officer of Dreman Value Management LLC.

"He's made some pretty big mistakes," Dreman said in a telephone interview. "He's been very good at building the company, but he's been very bad at some of his decisions."

Dreman, who said he is holding onto his stake in WaMu, said the bank was likely to ride out the storm from subprime lending because of its significant earnings from a strong banking franchise, one of the largest in the United States.

WaMu said on Monday it would slash its dividend, cut 3,150 jobs and raise $2.5 billion in new capital because it sees losses from mortgage lending increasing through next year.

The announcement surprised some investors because the company did not indicate the extent of its problems during a recent forum for analysts, said Dreman, whose firm held 22.9 million WaMu shares at the end of September.

WaMu's shares were off 8.25 percent in midday trade on Tuesday. The stock has declined about 60 percent since a 52-week high at the end of 2006.

A call to WaMu seeking comment was not immediately returned.

Killinger, like former Citigroup Chairman Sandy Weill, put together a big banking franchise but sought quick profits, Dreman said. Killinger also failed to disclose WaMu's problems, which started two years ago due to mortgage problems, in a timely fashion, he said.

"He was really good on the acquisition stage. He put a lot of S&Ls together and built WaMu enormously that way," Dreman said. But Killinger "went for the fast buck on those mortgages and Killinger I think was a little slow in disclosing it."

Dreman said the scare on Wall Street over financial stocks, is overdone and once it subsides, beaten down banking stocks will likely move up quickly.

"There's a panic in some of the financials; I think they're probably over doing it. But you also don't want to catch a falling knife and get anymore into it until the air clears a little more," he said.

There is frequent speculation that WaMu could be acquired, but Dreman said many banks do not have the wherewithal to make an acquisition.

However, he acknowledged that "at some point somebody's going to look at them because of their enormous banking system."

On Sept. 28, the last trading day of the third quarter, Dreman's stake in WaMu was worth about $808.6 million, according to FactSet Research Systems Inc. On Tuesday, the stake was worth about half that, at about $419.1 million.