You probably could have seen this coming. Last year, Chuck Prince at Citigroup (NYSE: C) and Stan O'Neal from Merrill Lynch (NYSE: MER) got the axe. Now, after a brutal bout of losses and writedowns, another round of bank-exec demotions is shaking the financial world.
Steeeeerike 3!
Washington Mutual (NYSE: WM) CEO Kerry Killinger has been stripped of his chairman title, in what appears to be a move by the struggling Seattle-based bank to establish order in its corporate governance. He'll be replaced by Stephen Frank, who's sat on WaMu's board for more than a decade.
It's been a tumultuous few months for WaMu, which has been hammered hard over its heavy exposure to the California and Florida housing markets. Back in March, Killinger came under fire from shareholders after disclosing that some executives' bonuses would be calculated as if parts of the real estate debacle -- the same one that's shoved shares 80% lower in the past year -- essentially never happened. That plan was eventually scrapped, but only in time for shareholders to eat a $7 billion dilution and learn that management had rebuffed a sweet offer from JPMorgan Chase (NYSE: JPM). Shoulda, woulda, coulda.
On the other side of the country, Wachovia (NYSE: WB) CEO Ken Thompson was ousted by the company's board of directors after eight years at the helm. After orchestrating the 2006 purchase of lender Golden West Financial near the peak of the housing bubble, Thompson was left looking about as susceptible to the market's hysteria as any of the investors who believed real estate would march higher until the end of time. Shareholders were left floundering with a nearly $400 million first-quarter loss.
New face, same company
As Peter Lynch once said, "Go for a business that any idiot can run -- because sooner or later, any idiot probably is going to run it." Bank executives enjoyed a multiyear run-up that rewarded ridiculous behavior, provided those actions squeezed out short-term profits. While you should have little pity for the departed executives, the past few years have been a double-edged sword for them. Had they done the "appropriate" thing during the real estate run-up and stuck to time-tested, conservative lending practices, they would have likely been fired for underperforming their gung-ho peers. When quarterly results become the end-all performance metric, there's little room for leaders to venture outside the herd.
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