Tuesday, September 09, 2008

Kerry Killinger Gets His Comeuppance At WAMU

Yesterday's and today's Wall Street Journal were full of articles regarding the weekend sacking of Washington Mutual's (WAMU) CEO since 1990, Kerry Killinger.

Back in May, I wrote this post discussing the then-existing situation in which Killinger and other smaller 'national' bank CEOs had escaped the axe while destroying tremendous amounts of shareholder value, while Chuck Prince, Stan O'Neal and Marcel Ospel had already been fired at Citigroup, Merrill Lynch and UBS.

In that post, I argued that, Killinger's and other CEOs' continued tenure to the contrary, the real evidence of effective reactions to their incompetent management of their banks was the negative total returns they had earned for their shareholders.

For example, I have included in this post the Yahoo-sourced 1-, 2- and 18-year charts of share prices for WAMU, Citi, Chase, BofA, Wachovia, and the S&P500 Index.
Among all of these crippled banks, WAMU fell furtherst in the past twelve months, losing its shareholders some 70% of their value. But all had negative price changes for the period.
The two-year picture is similar, only in this one, Chase, too, is below the S&P. All the banks again sport negative price changes for the period. WAMU is again the worst of the lot.
My contention is that Killinger's shareholders voted with their feet over the past year. That's why the stock price fell further than those of other banks, on a percentage basis.
Now Alan Fishman has been hired, with a $7.5MM upfront signing bonus, i.e., combat theatre pay, to rescue WAMU.
For once, I agree with Dick Bove, the bank analyst quoted in today's Journal as opining that a new CEO at WAMU won't have any effect on its balance sheet full of rotten mortgage loans.
Thus, as bad a beating as some prior shareholders took to exit WAMU stock, they are probably going to look good compared to the value remaining shareholders have after the sale of the bank Fishman will likely have to engineer.
I know he says he'll get WAMU back into solid financial shape. But, let's be honest. Who will invest in it now? Doesn't it make more sense that, when the Feds find Fishman's five-year plan doubtful, they will help arrange the sale of WAMU, or it's better assets- physical offices, better financial assets, etc., to another financial institution?
Too bad shareholders can't get the board to financially penalize Killinger on his way out. After looking at the nearby price chart for 1990-present, it's clear that Killinger left WAMU's shareholders about where they were when he took over as CEO, except for dividends.
But that's hardly a performance that merits Killinger's haul of, according to the Journal,
"1.2 million shares of common stock....worth about $5.2 million. He also has $14.9 million in deferred compensation and $3.5 million in pension benefits, according to the filing."
So, even after zeroing out the common equity value, Killinger receives about $19MM for wrecking WAMU over the course of 18 years.
Who says crime doesn't pay? Well, maybe just appallingly bad management of a bank?

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