Wachovia CEO out at board's request

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NEW YORK (CNNMoney.com) -- Wachovia Corp. Chief Executive Ken Thompson became the latest casualty of the credit crunch on Monday when he stepped down under pressure from the bank's board.

Thompson, a 32-year veteran at the Charlotte, N.C.-based bank, will be replaced on an interim basis by Lanty Smith, the firm's current chairman.

The news of Thompson's retirement stirred worries on Wall Street that the bank may reveal more trouble, sending Wachovia (WB, Fortune 500) shares nearly 4% lower in early trading.

Wachovia said it was not a single incident that prompted Thompson's exit but a "series of previously disclosed disappointments and setbacks" that have weighed on the company's performance.

Smith said Monday that new leadership was needed to revitalize the company's business and denied speculation that the bank was in a crisis, Dow Jones reported.

Thompson joins the list of CEOs toppled in the past year. Last fall, Citigroup (C, Fortune 500) chief Chuck Prince and Merrill Lynch (MER, Fortune 500) CEO Stanley O'Neal both stepped down after the two firms reported multi-billion dollar losses after making big bets on the U.S. housing market.

Wachovia's woes, however, have only surfaced recently. In mid-April, the nation's fourth-largest bank reported a surprising first-quarter loss of $350 million - hurt, in part, by its ill-timed 2006 acquisition of California mortgage lender Golden West Financial Corp.

Shortly thereafter, the company drew the ire of its shareholders by announcing plans to raise $7 billion in capital through a stock offering and to slash its quarterly dividend by 41%.

Thompson defended the actions at the time, saying the capital raising was done to gird the company's balance sheet against a protracted downturn in the housing market.

The news only got worse last month when Wachovia restated its losses. The company said its losses were, in fact, closer to $708 million following a review of its life insurance portfolio.

"In hindsight, when you see all these things, it is not a surprise that the board would reach this conclusion," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners L.P. "The surprise is what caused the board to reach this conclusion today."

The proverbial writing on the wall for Thompson may have appeared as recently as last month when he was stripped of his chairman role, which was handed to Smith, a long-time board member, who has served as a director since 1987. At the time, the company said the move to split the role of CEO and chairman was done to strengthen its leadership.

Wachovia said it has already formed a special search committee to locate a permanent CEO, which would be headed by Smith himself. The company said it would conduct a "careful and thorough search," looking for candidates both inside and outside the firm.

In the meantime, all of the company's different business units - including its investment banking, wealth management and retail banking divisions - will report to Ben Jenkins, the company's current vice chairman, whom the company named as interim chief operating officer on Monday.

In related news, Washington Mutual (WM, Fortune 500), which has also been struggling in recent months with the ongoing downturn in the housing market, announced its own corporate governance shake-up. The company said it would split the role of chairman and chief executive, after shareholders voted in favor of the move at the company's annual shareholder meeting in April.

Taking over Kerry Killinger's chairman duties will be current boardmember Stephen Frank, while Killinger continues to serve as CEO.