WaMu Board's Actions a Positive, But Profitability Far Off; Reiterate Neutral

6/2 - "WM’s decision to replace Kerry Killinger as the Chairman of the Board may have been long in coming. However, this step is likely just the first step toward closer oversight of the company’s management team and reflects an increasingly popular trend toward better Board independence, in our view...The prospect that the board could take steps to remove Killinger as CEO remains quite possible, in our opinion, as it appears investors’ voices are becoming more audible, as judged by the fate of other large under-performing financial company CEOs."

"WM reiterated its focus to return to profitability by reducing operating expenditures and growing/preserving the value of its retail banking franchise, while maintaining adequate capital and liquidity. This process is likely to require several more years, as we estimate that WM will not profitable until H2’09, as credit costs will likely weigh on its earnings power through 2012."

"Capital adequacy appears sufficient to provide it the flexibility to work through the next few years without significant risk to its financial strategy; though visibility to a successful exit remains uncertain, in our view. Still, the intermediate-term downside appears limited with long-term upside to low 20’s over the next few years. We expect shares to remain range bound until visibility improves or headline risks subside."