September 8, 2008 – 10:01 am

Washington Mutual slammed the door shut on an empty barn today, effectively saying that its insiders were out and its game is up. Let’s take a look:

Washington Mutual Inc., the biggest U.S. savings and loan, removed Kerry Killinger as chief executive officer after he failed to halt losses tied to home mortgages that already total $6.3 billion.

Alan Fishman, 62, of Meridian Capital Group, a commercial mortgage broker, will replace Killinger, 59, Seattle-based WaMu said in a statement today. Regulators will be monitoring WaMu after the bank agreed to reduce risks and tighten its procedures, according to the statement, and the stock dropped as much as 14 percent.

The move was not unexpected. Killinger had been voted out as the bank’s chairman in June as investors blamed him for the expansion into the subprime minefield:

Killinger’s expansion into subprime mortgages helped trigger losses for three straight quarters, and the stock tumbled 88 percent in 12 months.

Killinger now goes the way of former CEOs Charles “Chuck” Prince of Citigroup, Kennedy Thompson of Wachovia Corp, and Stan O’Neal of Merrill Lynch. Yesterday the heads of mortgage companies Fannie Mae and Freddie Mac were also replaced.

It is probably not a coincidence that Killinger and the heads of Fannie and Freddie all resigned on the same day. Nor should the resignation be confused with an appropriate ouster by justifiably outraged investors. Rather, it seems far more consistent with Wall Street’s ways that his departure simply means management has drained WaMu dry, and Killinger will be spared the consequences of his actions: conservatorship.

But by the time the regulators move in, it is already way too late:

 

WaMu said it signed a memorandum of understanding with its chief regulator, the Office of Thrift Supervision, that calls for the bank to improve risk management and compliance. The lender promised to give the agency a “multi-year business plan and forecast for its earnings, asset quality, capital and business segment performance.”

The plan doesn’t call for more capital or increasing liquidity, WaMu said, which may allay investor concern that the lender may have to seek new cash on top of the $7 billion raised earlier this year.

Washington Mutual won’t be around for multi-years, so the business plan will not require capital to be raised or liquidity to be increased.

Had this been a true exercise in investor power, it would have come along when something significant could have been done:

“We’ve been surprised that it hasn’t come sooner,” Patrick Becker Jr., chief investment officer at Becker Capital Management, said of Killinger’s departure. “He was the architect who put this together. Clearly the foundation of it was not built to withstand the mortgage crisis.”

Becker said his Portland, Oregon-based firm, which oversees about $2 billion, hasn’t owned WaMu shares since before the mortgage bubble began to deflate.

Well there’s no reason to be surprised, not with the cozy relationship of the CEO to the board.

Company directors, some of them civic leaders in WaMu’s hometown of Seattle, were loyal to Mr. Killinger, who had served as chief executive since 1990.

No, this is simply a case of “the money’s gone and the gig is up.” 

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