WaMu to CEO: You're Fired!

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Almost every financial stock rallied on Monday, amid news of a government bailout of Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM). But one stubborn little grunt actually lost a substantial amount of value: Washington Mutual (NYSE: WM). Perhaps there's good reason for that.

After roughly 18 years at the helm, CEO Kerry Killinger was shown the door, leaving WaMu with a management shakeup that could send its wobbles into overdrive. Alan Fishman, the current boss of mortgage broker Meridian Capital Group, will take Killinger's spot.

Was Killinger a terrible CEO? Maybe not terrible, but certainly gullible. He pushed WaMu's home-lending portfolio into a barrage of subprime and adjustable-rate mortgage products over the years, subsequently leaving the Seattle-based thrift one of the industry's most vulnerable banks. Whether he felt those loans were actually a good idea, or he was just bent on "making the quarterly numbers," I won't venture to guess. The results speak for themselves.

In 2004, then-Federal Reserve Chairman Alan Greenspan said, "[I]mprovements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities." Perhaps Killinger took him a little too seriously. Or perhaps the part that went "unrecognized" was that lending money to people who can't pay you back has never worked. Who knows? Either way, WaMu's portfolio of home loans now consists of more than $50 billion in option adjustable-rate mortgage products -- likely one of those "improvements in lending practices" Greenspan spoke of.

Killinger's capital-raising moves in early April may have cast the deciding blow. During that time, JPMorgan Chase (NYSE: JPM) made a preliminary buyout offer of $8 per share, or more than twice today's share price. That offer was quickly rebuffed. Why? Some think it was because Killinger would almost certainly lose his job under a JPMorgan buyout. Instead, Killinger (that same week) agreed to take a $7.5 billion injection from private equity firm TPG Partners, diluting the snot out of existing investors, but keeping his job.

At least for another five months.

For related Foolishness:

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