WaMu ousts CEO, faces US regulatory oversight

NEW YORK (Reuters) - Washington Mutual Inc (WM.N), the largest U.S. savings and loan, ousted Kerry Killinger as chief executive and has been put under special regulatory supervision, following skyrocketing losses from mortgages that are expected to weigh on results for years.

Alan Fishman, 62, chairman of mortgage broker Meridian Capital Group and a former chief operating officer of Sovereign Bancorp Inc SOV.N, was named to replace Killinger, who had run the Seattle-based thrift since 1990.

Washington Mutual's expansion into subprime and other risky mortgages led to $6.3 billion in losses over three quarters, and caused the stock to lose nine-tenths of its value in the last year. The thrift has said losses from one-family residential mortgages could approach $19 billion through 2011.

"WaMu is facing unprecedented housing and market conditions," Chairman Stephen Frank said on a Monday conference call. "The board felt that new leadership with a combination of deep industry experience and a fresh perspective would be the most effective way to lead the company."

Killinger, 59, joins Citigroup Inc's (C.N) Charles Prince, Merrill Lynch & Co's MER.N Stanley O'Neal and Wachovia Corp's WB.N Ken Thompson among financial services chiefs to lose their jobs because of mortgage losses.

On Sunday, the chief executives of Fannie Mae (FNM.N) and Freddie Mac (FRE.N) were also replaced. Washington Mutual's board in June had stripped Killinger of his job as chairman, a role he had held since 1991.

Washington Mutual also cut 6,205 jobs, or 13 percent of the total work force, from January to June.

"It seemed like the writing was on the wall," said Chris Armbruster, an analyst at Al Frank Asset Management, which owns the thrift's shares. "A new leader may take the opportunity for write-downs to rid himself of baggage from former management. The change may indicate bigger write-downs to come."

Washington Mutual signed a memorandum of understanding with its chief U.S. regulator, the Office of Thrift Supervision, requiring improved risk management and compliance procedures.

It also agreed to provide a multiyear business plan to the regulator, including a forecast for earnings, asset quality and capital. Washington Mutual said the plan will not require it to raise capital, boost liquidity or cut products and services.

Washington Mutual shares fell 15 cents, or 3.5 percent, to $4.12 in Monday trading on the New York Stock Exchange. They are down 89.5 percent from the 52-week high of $39.25 set last September 19.

'NO DRAMATIC' DEPOSITS MOVEMENT

In an interview, Fishman said he plans to review "critical financial issues" over the next several weeks.

"We're not talking about radical changes. It's more execution issues, and the avoidance of errors," said Fishman.

Saying the Fannie and Freddie bailout may "dramatically change" U.S. mortgage lending, he added: "I reject the principle that by changing the business model, you're going to slow down growth."

Before joining Sovereign, Fishman ran Independence Community Bank Corp, a Brooklyn, New York, lender purchased by Sovereign in 2006 for $3.6 billion.

Fishman said he was watching the Summer Olympics at a friend's home in London, when Frank first contacted him about the job.

On the conference call, Fishman said "it's way early" to speculate about asset sales, and that there have been "no dramatic movements" in deposit flows at Washington Mutual.

The thrift has offered high interest rates on some deposits in recent months. A surge in withdrawals at IndyMac Bancorp Inc IDMC.PK led to regulators to seize the California lender, which had been one of the largest U.S. thrifts, in July.

Killinger, whom Frank called a "visionary," expanded Washington Mutual into one of the largest U.S. consumer lenders, with $309.7 billion in assets and 2,239 branches.

CAPITAL NEEDS

Earlier this year, Washington Mutual raised $7.2 billion from investors led by private equity firm TPG Inc TPG.UL, diluting existing shareholders.

This followed a rejection of a $7 billion takeover by JPMorgan Chase & Co (JPM.N), a source told Reuters at the time. Washington Mutual has also eliminated most of its dividend.

The Service Employees International Union, a shareholder that had called the TPG investment a costly way to entrench management, applauded Killinger's ouster but said the thrift remains "in worse trouble than ever."

CreditSights Inc analyst David Hendler wrote that the management change "indicates that the private equity investors are taking an active role in WaMu's management."

Hendler added that WaMu "seems to have adequate liquidity sources," but that if conditions worsen, regulators "could encourage a merger with another institution, a purchase and assumption transaction, sales of branches, further injections from private equity or some other public-private partnership."

Armbruster said merger partners might stay away until it becomes easier to value the thrift's mortgage exposure.

A TPG spokesman declined to comment.

National City Corp NCC.N, a large Cleveland-based lender also facing heavy mortgage losses, entered into memoranda of understanding with regulators earlier this year.

Fishman will receive a $10 million signing bonus, including $2.5 million in performance-linked stock. His salary will be $1 million, with options to buy 5 million shares.

(Additional reporting by Paritosh Bansal, Megan Davies and John Poirier; Editing by John Wallace/Jeffrey Benkoe)