Why should WaMu investors stick around?
Posted
Apr 07 2008, 02:12 PM
by
Matt Koppenheffer
Rating:
Washington Mutual chief executive Kerry Killinger might as well be standing in front of a "Mission Accomplished" banner today. WaMu shares are skyrocketing on hopes of a $5 billion investment from private equity shop TPG that would give the bank a nice cushion to deal with its massive lending missteps.
While Citigroup, Bear Stearns, and Merrill Lynch may grab most of the headlines because the magnitude of their losses was so great, WaMu has managed to lose an impressive amount of money for a bank of its size. WaMu finished 2007 with a loss of $67 million thanks to loan loss provisions above $3 billion and charge-offs of $1.6 billion.
Meanwhile, the company seems to care far more about Mr. Killinger than its shareholders. After reporting the dismal results for 2007 -- results that took the stock down 70% from where it started the year -- the board of directors concocted a compensation plan that would ignore the effects of the bank's potential loan losses, foreclosed real estate, and restructuring. So in the coming year, while investors will continue to feel the effects of further losses, the executive team can rest easy that their payout won't be crimped by their past strategic decisions.
And it's no wonder that WaMu executives don't have their objectives well aligned with shareholders -- in all, executive officers own just over 1% of the outstanding stock. More shocking is the fact that Mr. Killinger, who has been the CEO of WaMu for 18 years, owns less than 1% of WaMu's outstanding stock, and over 80% of his "ownership" position comes from options that he's been granted.
Meanwhile, a report from The Wall Street Journal noted that if the $5 billion from TPG comes through, Mr. Killinger will be kept at the top post.
Readers might wonder, then, why anybody would want to own WaMu stock at this point. With the stock down so significantly, many investors see it as a lottery ticket. They believe that if the company is able right the ship in any way that the stock will skyrocket. Comments in The Motley Fool's CAPS community show that this belief is held by a number of investors:
- "Worst case is 20% or so further dilution of stock vs. an 80-100% upside at current prices." (TheBadDad)
- "This stock has already taken the heat, while other financials are recovering. Washington Mutual is due for a BIG bounce, and overall is a stable company." (gwinternetman)
- "They will either turn it around or get bought out either way it is up from were they are today." (twanjik)
Despite these bullish comments, there are plenty of members of the community that think it's worth avoiding WaMu. Right now, the stock carries a CAPS rating of just two stars out of a possible five.
In the end, those looking to gamble on WaMu may end up being rewarded for taking the risk -- the stock is already shooting up 30% on today's deal speculation. However, those looking for a good long term investment may want to steer clear of WaMu until Mr. Killinger and the company's board start acting more like agents of shareholders.
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