Fire Killinger, replace board

Washington Mutual Inc. should fire Chief Executive Kerry Killinger and replace its board after an 85 percent stock-price plunge in the past year, said David Dreman, the bank's ninth-biggest shareholder.

The company must hold Killinger accountable for its $3 billion in subprime-related losses, Dreman said Friday. His Jersey City, N.J.-based Dreman Value Management LLC owns a 2.7 percent stake valued at about $183 million.

"The enormous losses in subprime, adjustable-rate and commercial real estate make me very much want to see him replaced," Dreman said in a phone interview. "He's been at the helm."

Killinger, 59, stepped down as chairman this month after investors voted in April to remove him. Losses related to the slumping real estate market have already claimed the jobs of CEOs including Citigroup Inc.'s Charles O. "Chuck" Prince, Wachovia Corp.'s Kennedy Thompson and Merrill Lynch & Co.'s Stan O'Neal.

Washington Mutual, the biggest U.S. savings and loan, rose 3 cents to close at $6.38 on the New York Stock Exchange. The stock has dropped 53 percent this year, compared with the 24 percent decline in the Standard & Poor's 500 Financials Index.

Derek Aney, spokesman for Seattle-based WaMu, said Killinger, as a director, received support of 88 percent of shareholders who voted at the company's annual meeting in April. At the same meeting, investors voted to split the roles of CEO and chairman, rejecting the board's recommendation.

Earlier that month, Killinger raised $7 billion from a group led by David Bonderman's TPG Inc. after a first-quarter loss of $1.14 billion. Washington Mutual had to write down the value of its home-loan unit by $1.6 billion in the fourth quarter.

The world's largest financial institutions have reported $396 billion in asset writedowns and credit losses tied to the U.S. housing slump, according to Bloomberg data.

Dreman said he would vote for a new slate of WaMu board members at the earliest opportunity. The company has a shareholders meeting set for Tuesday, and there is no proposal for the board to be replaced.

Dreman added to his Washington Mutual stake in the first quarter, calling the stock's plunge "an enormous overreaction" in a January interview. He said at the time the bank may be an acquisition target. Dreman managed more than $15 billion in assets as of March 31.

Washington Mutual has ranked among the largest U.S. subprime mortgage companies. Those loans go to people with the weakest credit, and default rates set records in 2007. Prior to the last two quarters, Washington Mutual had been profitable every period since 1997.

"They have suffered recently and struggled because of their reliance on products that were not well underwritten," said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based housing activist group. "They seemed to be doing a lot of the nontraditional products. That was not a recipe for success."

Killinger joined Washington Mutual in 1982 through the acquisition of Murphey Favre Inc., a securities firm. Before that, he was an investment analyst with Banker's Life Insurance of Nebraska.

After rising to president in 1988, Killinger was promoted to CEO in 1990 and became chairman a year later. Between 1990 and the end of 2006, Washington Mutual shares jumped almost twentyfold, while the S&P 500 quadrupled.

Seven years after taking over as CEO, Killinger engineered the $8 billion takeover of Great Western Financial Corp., doubling assets and branches and making Washington Mutual the largest U.S. savings and loan. Killinger later bought 14 companies, including H.F. Ahmanson & Co. for $6.9 billion in 1998 and New York's Dime Bancorp for $5.2 billion in 2002.

His buying spree contributed to a sevenfold rise in assets, to $351 billion in mid-2006. Washington Mutual operations stretched to 2,500 branches, from 413 offices in mid-1997.