By Donna Gordon Blankinship
Associated Press
Wednesday, April 16, 2008

SEATTLE, April 15 -- Washington Mutual, the nation's largest savings and loan, said Tuesday that it lost $1.14 billion in the first quarter as the struggling economy and flagging real estate values pummeled the bank's borrowers.

The Seattle-based thrift lost $1.40 per share, compared with a profit of $784 million, or 86 cents per share, in the first quarter a year earlier. It was the bank's second consecutive quarterly loss.

Washington Mutual also said it needed to set aside $3.5 billion to cover bad loans in its $250 billion portfolio during the first quarter. The bank set aside less than half as much to cover bad loans in the year-ago period.

With the housing market suffering and the economy slowing, more consumers are missing payments on their bills, the company said.

Chairman and chief executive Kerry Killinger promised shareholders that Washington Mutual will turn around within a year.

"We will get through this," Killinger told more than 2,000 shareholders at Seattle's symphony hall for the bank's annual meeting Tuesday. "I want people to calm down and have a little faith."

Killinger outlined the company's strategy for working through the mortgage crises: aggressive marketing of credit cards, continued growth in services to small businesses, and ongoing improvement in deposits at its retail branches.

Despite sharp rebukes from shareholders during a question-and-answer session, Washington Mutual's board of directors was reelected, according to a preliminary vote count announced during the meeting.

Killinger, however, announced at the beginning of the meeting that Mary E. Pugh, chair of the finance committee, had resigned from the board.

A shareholder initiative calling for the chairman and chief executive of Washington Mutual to be different people also appeared to be passing, according to Killinger, who holds both jobs. But during a conference call after the meeting, he called the resolution advisory, not mandatory.

"The board of directors will take that into consideration," Killinger said, adding that nothing would change immediately.

Fred Cannon, an analyst with Keefe, Bruyette & Woods, said he thought that statement was one of the most surprising developments in the Washington Mutual story this week, particularly since analysts were told about the poor results a week ago.

"The story is what's going on with the shareholder vote and those corporate governance issues," Cannon said.

Before the annual meeting, groups representing government and union pension funds with stakes in Washington Mutual said some board members should be held accountable for not acting to protect the company as evidence mounted that housing prices were set to collapse.

The results were issued after financial markets closed. Washington Mutual shares rose 3 percent, to close at $10.66. In the past year they have traded from $44.66 to $8.72.