WaMu: WSJ Backs Up My Sell Recommendation

| About: WMIH Corp. (WMIH)

Last November, we warned investors to Sell or avoid Washington Mutual (NYSE:WM). We are reissuing our Sell recommendation today.

The issue then was directors and executives changing the benefits rules to protect executive wealth at the same time that shareholder wealth was melting due to bad lending decisions by management — reward for failure and subordination of owner’s interests to management’s interests.

We received may angry comments, mostly in courageously anonymous form, but none with counter arguments — just anger.

Well, they are at it again. This time, though, we will support our reiterated Sell with an extract from yesterday's (March 5, 2008) Wall Street Journal.

The board of Washington Mutual Inc. has set compensation targets for top executives that will exclude some costs tied to mortgage losses and foreclosures when cash bonuses are calculated this year.

The move, approved last week and disclosed in a securities filing late Monday, essentially shields the pay of chairman and chief executive of the thrift, Kerry Killinger, and more than 100 other executives from the continuing mortgage fallout.

The new formula angered some WaMu investors, who have seen the value of their holdings shrivel as the thrift’s mortgage troubles worsened. In the past year, WaMu’s share price has tumbled about 70% — to where it was about 12 years ago. … ‘They’ve cost their shareholders a lot of money,’ said David Dreman, chairman of Dreman Value Management LLC, which holds 27.9 million WaMu shares. ‘Bonuses should be given to the executives who enhance shareholder value, not destroy it.’

In a research report, Frederick Cannon, an analyst with Keefe, Bruyette & Woods, expressed concern that the cash-bonus formula ‘could result in executive focus away from issues, particularly credit management, that we feel are critical to the success’ …

We recommend investing in companies which demonstrate a corporate commitment to building shareholder value that is at least as important to management and directors as building executive wealth. Washington Mutual doesn’t cut the mustard in our opinion. Sell WaMu.