Tuesday, June 10, 2008

It's Personal

The credit crisis continues to take down new victims, and the high rolling heads include two more CEOs. As with Citigroup’s “Chuck” Prince and Merrill’s Stan O’Neal, today the credit crisis hits home for two more bank CEOs: Washington Mutual’s Kerry Killinger and Wachovia’s Kennedy Thompson.

Wachovia stumbled its way through a first quarter 2008 when nothing seemed to go right. Even the employee life insurance plan lost money:

Wachovia Corp. ousted Kennedy Thompson as chief executive officer of the fourth-largest U.S. bank after the board blamed him for losses that cost the lender more than half its market value in the past year. The stock fell as much as 4.5 percent.

Thompson signed his own death warrant, and perhaps Wachovia’s too, when he opted for the $24B buy-out of subprime lender Golden West Financial Corp. at the peak of the housing boom. Worse than the timing was the fact that about half of Golden West’s lending was in two states with stratospheric foreclosure rates: California and Florida (and before that, stratospheric liar loan rates). With losses piling up last week, time finally ran out for Kennedy Thompson:

Thompson’s credibility was dented after he said this year that Wachovia’s $24 billion purchase of Golden West Financial Corp. in 2006 at the peak of the housing boom was “ill-timed.” About half of the unit’s lending is in California and Florida, two states with some of the highest foreclosure rates.

His reputation took another hit May 6 when the bank said its first-quarter loss was $708 million, 80 percent more than what Wachovia previously reported, because of writedowns for bank-owned insurance policies. Wachovia cut its dividend by 41 percent in April and raised about $8 billion in new capital.

If Wachovia’s investors executed its CEO, Washington Mutual’s shareholders sought to crucify theirs. While Wachovia staggered toward its first-quarter disaster, Washington Mutual tried to concealed theirs. But the plot was discovered and the plot leader was beheaded:

Washington Mutual Inc., the savings and loan that got a $7 billion capital infusion, said Chief Executive Officer Kerry Killinger will step down as chairman following investor complaints for an 80 percent decline in market value in the past year.

Thanks to Killinger’s bold leadership, shareholders can look forward to billions in future losses and addition dividend cuts:

Shareholders voted at the company’s annual meeting in April to remove Killinger from the chairman’s post after losses on mortgages and two dividend cuts. Washington Mutual said then it could lose as much as $19 billion in the next three to four years on home loans depending on U.S. economic conditions.

For its past, the bank made a statement saying they are being great guys about it all:

The announcements today reflect “the board’s commitment to listening to feedback from our shareholders,” according to the statement.

Commitment to board survival is what they mean. That “let them eat cake” crud didn’t go over so well when the mob stormed the Bastille. The only thing the bank’s insiders and higher-ups are proving is that they CAN learn from history — about how to save their own necks.

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