It's been a heck of a week for Washington Mutual (NYSE: WM). Just days after announcing plans to raise $7 billion in new capital, slashing its dividend, and rebuffing a preliminary buyout offer from JPMorgan Chase (NYSE: JPM), the Seattle-based savings and loan announced quarterly earnings so ugly, they could make a pirate cry.
For the first quarter, it swung to a loss of $1.14 billion, or $1.40 per share, from a profit of $784 million, or $0.86 per share, in the same period last year, even though revenue nudged up 3.4% to $3.74 billion. To put that in perspective, $1.14 billion represents about 12% of WaMu's market cap.
Preparing for more pain from the rattled housing market, WaMu set aside $3.51 billion to cover potential losses -- more than double the amount announced the quarter before. WaMu has a heavy concentration of real estate exposure in California and Florida, two hubs of the fiasco that continues to plague the financial sector.
Shareholders, grimacing about the 73% drop in WaMu's stock price over the past year, are beginning to speak out. Mary Pugh, who had served on WaMu's board of directors for nearly a decade, stepped down after succumbing to criticism from shareholders, who claimed that she didn't do enough to protect WaMu from the perils of subprime and adjustable-rate mortgage products.
WaMu CEO Kerry Killinger also announced changes to the controversial executive compensation plan. The plan originally included a rather shady way of calculating bonuses, ignoring some of the credit losses that have clobbered shareholders (and cost former employees their jobs) when determining compensation for top executives. After shareholders stomped their feet in frustration, it now appears that management's pay will have to abide the losses (boo hoo).
What's next for WaMu? While a good chunk of nastiness has been purged, only time will determine whether there's more to come. Some bank CEOs, such as Goldman Sachs' (NYSE: GS) Lloyd Blankfein, UBS' (NYSE: UBS) Marcel Rohner, and Morgan Stanley's (NYSE: MS) John Mack, have suggested that the darkest moments of the credit crunch are behind us. Are they right? That's anyone's guess. It seems deeply ironic that CEOs who've written tens of billions of dollars off their balance sheets claim clairvoyance over the same market that burned them.
At any rate, WaMu has some rough sailing ahead. Even if the real estate and debt markets begin to recover, the newly issued capital severely dilutes existing shareholders' stake in the company, making the hope of booming stock prices a fading dream.
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