WaMu board challenge eyed

The union-affiliated investment advisory group that wants three Washington Mutual Inc. directors to explain their role in the mortgage crisis now plaguing the company says it's not getting much response from WaMu, and it is close to recommending that shareholders vote against their re-election to the board.

CtW Investment Group is also unhappy about WaMu's recent disclosure of an executive compensation bonus plan that excludes credit-loss and foreclosure costs from performance targets, and says it might expand its recommendation of voting against incumbent directors to members of the human resources committee, which approved the bonus plan.

With WaMu's annual meeting barely a month away, and the company soon to send out proxy statements and ballots to shareholders, "We're really at the point where we make decisions now with what to do with Washington Mutual," said Richard Clayton, CtW Investment Group's research director. "Given the unwillingness to hold a meeting, we are seriously considering recommending to withhold" votes.

Meanwhile, WaMu's stock had its eighth straight losing session Friday, falling to a closing price not seen since the mid-1990s.

CtW Investment Group is a pension adviser affiliated with Change to Win, a group of unions such as the Service Employees International that broke away from the AFL-CIO. WaMu is one of six companies CtW has targeted with questions to specific directors asking them what actions they took, if any, to protect investors from the housing finance crisis and why they didn't spot signs such a crisis was coming.

At WaMu, CtW sent letters to directors Mary Pugh, William Reed Jr. and Stephen Frank; they are members of the finance committee, which has oversight of risk management issues. (The finance committee has more than three members, but Clayton says CtW chose those who have been on it the longest or who have specific issues, such as financial ties to WaMu.)

Clayton said CtW was contacted by WaMu's general counsel, asking if the group would be willing to meet with senior executives. He said CtW wanted to have at least one of the three directors in attendance so it could pose questions directly. CtW hasn't heard back since, he said.

"We are going to formally respond to them," a Washington Mutual spokeswoman said Friday.

CtW has said that if it doesn't receive an adequate response, it will recommend that shareholders withhold their votes for the three directors at the April 15 annual meeting. That's the equivalent of a "no" vote, since WaMu requires directors to receive a majority of the votes cast. If they don't, they're expected to submit their resignations from the board, although it's up to the remaining directors whether to accept it.

In a Securities and Exchange Commission filing Monday, WaMu disclosed the bonus plan for top executives for 2008. While the payment of bonuses depends on meeting certain financial goals, including net operating profit, WaMu said it might eliminate certain charges and items from those calculations, including loan-loss provisions (except for credit cards) and expenses related to "foreclosed real estate assets."

"We were frankly astonished" that WaMu would consider excluding those factors from calculations of executive bonuses, Clayton said. "It may affect the way we think about the recommendation" of withholding votes for directors. CtW might look at other board members, including those on the human resources committee who approved the bonus-plan provisions, he added.

With cash compensation, stock and option awards, and other compensation, some outside directors at WaMu earned more than $200,000 each in 2006, according to last year's proxy statement.

WaMu stock tumbled from more than $44 a share last June to a closing price of $12.34 on Jan. 9, as the company reported a fourth-quarter loss to write down the value of its home-loan business and rising delinquencies in its loan portfolio.

The stock had actually staged something of a comeback in recent weeks, climbing to $21.82 on Feb. 1. But with worries growing about even more loan delinquencies and defaults, WaMu stock, since closing at $17.17 a share on Feb. 26, has dropped every day, falling to $10.71 Friday, down $1.05. At one point during the day it traded as low as $9.91.

Fitch Ratings lowered several grades on Washington Mutual on Friday, citing concerns about its portfolio and the concentration of loans in California.

Meanwhile, The Wall Street Journal reported Friday that federal regulators have informally told several banks, including Washington Mutual, to seek more outside capital from such sources as private equity funds and sovereign wealth funds. It also said that in November, a private equity firm offered to buy more than 10 percent of WaMu's stock; the company rebuffed the offer and raised capital through the sale of convertible securities.

A WaMu spokeswoman said the company doesn't comment on rumors and speculation.