WaMu Director Resigns Under Pressure

Updated from 4:57 p.m. EDT

Washington Mutual(WB Quote) director Mary Pugh has resigned, the company said Tuesday at an annual shareholder meeting marked by investor anger over the company's alleged missteps in the housing and credit crises.

Nearly 2,500 investors and employees alike shared grievances about WaMu's poor performance and a seemingly disadvantageous capital injection led by private equity group TPG to shore up the struggling Seattle thrift. CEO Kerry Killinger announced Pugh's resignation early in the meeting.

Pugh, chairwoman of the bank's finance committee and a director since 1999, and fellow Director James Stever, chairman of WaMu's human resources committee, have come under fire from investors in light of losses the nation's largest thrift has taken as a result of the mortgage meltdown and housing decline.

As expected, WaMu also on Tuesday recorded a first-quarter loss of $1.14 billion, or $1.40 a share, reflecting a higher level of provisioning as steep declines in home values led to further deterioration in mortgage credit markets. It also announced that it had closed the TPG deal.

CtW Investment Group, an activist pension fund investor, and other activist investors had called on shareholders to withhold votes for Pugh and Stever. Ten members of the bank's 12-member board, including Stever, appeared to have been re-elected by a majority vote, the bank said Tuesday. WaMu director Anne Farrell has retired, the company said.

CtW alleges that as heads of WaMu's committees responsible for risk management oversight and compensation plan design, the two directors "bear responsibility for Washington Mutual's failure to recognize and act in a timely manner on the risks to shareholder value presented by the housing bubble," it said in a March letter to other WaMu shareholders that was also released to the public.

In addition, CtW alleged that the two directors played a part in "attempting to insulate executive bonuses from the consequences of this risk management failure."

CtW Investment also questioned Pugh's independence as a director, since WaMu was a former client of Pugh's fixed-income money management firm, Pugh Capital Management. The CtW letter also said that Pugh's firm had been warning of a housing downturn since early 2006.

CtW works with pension funds associated with Change to Win, a federation of unions representing nearly six million workers in the U.S. The pension funds own approximately 4.6 million shares of WaMu's common stock.

The American Federation of State, County and Municipal Employees union (AFSCME) is also seeking the removal of Stever and others on the Human Resources Committee over the company's executive pay plan that "holds top executives harmless for subprime mortgage losses incurred by the company that have significantly hurt shareholder returns," it reiterated in a letter on Monday to WaMu's board.

WaMu has also come under fire recently for its executive pay practices.

In a March filing with the Securities and Exchange Commission, the bank outlined performance metrics for this year's cash bonuses for Killinger and other executives. The filing said that 2008 bonuses for its four top executives will exclude specific targets for loan losses, excluding credit card losses, and that WaMu's board will "subjectively evaluate" the company's performance in credit risk management.

The decision to exclude credit losses from its executives performance-based criteria sparked fury among investors and analysts, particularly as the company has taken huge provisions to protect itself from souring mortgage loans.

WaMu's board of directors have also decided to include "specific credit-related targets" to the performance metrics of the 2008 bonus plans for its top executives, Killinger announced at the meeting.

Investors have been hit hard by WaMu's plight over the past year. Shares have fallen 72%, as the nation's largest thrift has been forced to recapitalize twice in the past four months, culminating in the events of last week, where a consortium of investors led by private equity firm TPG agreed to sink $7 billion into the struggling bank.