Investor Group Takes Aim at Risk Committees

CtW Investment Group this week called on the directors of Bank of America and Washington Mutual (WaMu) to explain ways they acted to protect shareholders from the subprime crisis. The letters sent by the group, which advises union-sponsored pension funds, complete the group’s “Subprime Director Focus List” for the 2008 Proxy Season, which has also targeted risk committees at Merrill Lynch, Citigroup, and others.

The group has said that the banks’ risk committees – Bank of America’s asset quality committee and WaMu’s finance committee – failed to manage mortgage-related risks, which cost shareholders $71 billion last year.

CtW made its request for the banks to describe how they protected shareholders in letters to Bank of America directors Jackie M. Ward, Frank P. Bramble, Sr., and Robert Tillman, and WaMu directors Mary Pugh, Stephen E. Frank and William G. Reed. All six directors sit on the board committee of each company that oversees risk.

If the banks do not provide information on what they did to mitigate risk, CtW, which stands for "Change to Win," said it will ask shareholders to withhold their support at the banks’ annual meetings this spring.

The addition of the banks’ directors also completes CtW’s “subprime director list” for the coming proxy season. The group previously said it will work to hold accountable those directors most culpable for the risk oversight failures at Citigroup, Merrill Lynch, Morgan Stanley and Wachovia. All six Focus List banks are expected to hold annual meetings in April, the first being Morgan Stanley.

The focus list banks account for 88 percent of the $87 billion in total subprime-related write-downs and credit losses announced by large U.S. banks since the beginning of 2007.

“The directors bear ultimate responsibility for these failures,” Bill Patterson, CtW executive director, said in a statement. “Moreover, unlike at the vast majority of public companies, oversight and credit risk at both Bank of America and Washington Mutual is entrusted to a committee that is not wholly independent. Director conflicts of interest may have compromised the committees’ ability to rein in excessive risk taking by management.”