June 2 (Bloomberg) -- Wachovia Corp. ousted Kennedy Thompson as chief executive officer of the fourth-largest U.S. bank after the board blamed him for losses that cost the lender more than half its market value in the past year. The stock fell as much as 4.5 percent.

Chairman Lanty Smith was appointed interim CEO, the Charlotte, North Carolina-based company said today in a statement that cited ``a series of previously disclosed disappointments and setbacks'' for the change. Separately, Washington Mutual Inc. said its CEO will step down as chairman.

Wachovia stripped Thompson, 57, of the chairman's title on May 6 after shareholders -- incensed by the company's first quarterly loss since 2001 -- demanded his removal at April's annual meeting. A four-member search committee headed by Smith will seek a replacement to deal with fallout from rising mortgage defaults and writedowns tied to subprime home loans.

``This company was run under Ken Thompson without very good controls,'' Gerard Cassidy, an RBC Capital Markets analyst, said in a Bloomberg TV interview. Chances are even that Wachovia will seek a new CEO from outside the bank because there isn't a clearly designated successor, Cassidy said.

Wachovia dropped $1 to $22.80 at 10:35 a.m. in New York Stock Exchange composite trading. The company's shares have slid about 40 percent this year.

Washington Mutual

Ben Jenkins, vice chairman and president of Wachovia's largest subsidiary, its general banking unit, will become chief operating officer, reporting to Smith. No other senior Wachovia managers are leaving, the bank said.

The world's largest financial institutions reported more than $386 billion in asset writedowns and credit losses tied to the U.S. housing slump, according to Bloomberg data. The rout has led to CEO departures at some of the largest financial firms, including Citigroup Inc.'s Charles O. ``Chuck'' Prince and Merrill Lynch & Co.'s Stan O'Neal.

Washington Mutual, the nation's biggest savings and loan, said today that Chief Executive Officer Kerry Killinger would relinquish his title as chairman at the Seattle-based company.

The bank's board asked Thompson to leave ``several days ago'' and acted yesterday, Smith said during a news conference. No single event precipitated Wachovia's decision, Smith said, adding that while the bank isn't immune to industry conditions, which continue to deteriorate, Wachovia doesn't need to raise more capital.

``The company indicated at the end of the first quarter that the credit challenges are increasing and would increase. We continue to see that,'' said Smith, a director at Wachovia and predecessor First Union Corp. for 21 years.

Search Committee

The search committee will include three retired CEOs: Robert Ingram of drugmaker Glaxo Wellcome Inc., Joseph Neubauer of food-service company Aramark Corp. and Mackey McDonald of apparel maker VF Corp.

Thompson's credibility was dented after he said this year that Wachovia's $24 billion purchase of Golden West Financial Corp. in 2006 at the peak of the housing boom was ``ill-timed.'' About half of the unit's lending is in California and Florida, two states with some of the highest foreclosure rates.

His reputation took another hit May 6 when the bank said its first-quarter loss was $708 million, 80 percent more than what Wachovia previously reported, because of writedowns for bank-owned insurance policies. Wachovia cut its dividend by 41 percent in April and raised about $8 billion in new capital.

Life Insurance

Losses taken by Wachovia in recent months include a $315 million after-tax charge announced on May 20 tied to the declining value of its bank-owned life insurance policies. The company previously disclosed an $800 million to $1 billion charge because of tax-court rulings involving leasing transactions and a $144 million charge for failing to properly police telemarketers and payment processors.

``These three charges amount to 16 percent of the new capital raised in April and reflected poorly on senior management,'' KBW Inc. analyst Jefferson Harralson said in a note to investors today.

Thompson spent 32 years at Wachovia, heading its Florida and investment banking operations before becoming CEO in 2000. He succeeded Edward Crutchfield Jr., whose fast-paced acquisition style built First Union Corp. from North Carolina's third-largest bank into a dominant East Coast institution stretching from Florida to Connecticut.

Acquisitions

Thompson oversaw the 2001 acquisition of Winston-Salem, North Carolina-based Wachovia Corp., beating back a higher offer from Atlanta-based SunTrust Banks Inc. Success integrating that transaction and the 2004 purchase of SouthTrust Corp. earned him industry acclaim, giving Thompson credibility as Wachovia bought Golden West and then added A.G. Edwards Inc. in 2007 for about $6.5 billion, making Wachovia the third-largest U.S. stock brokerage.

``Sometimes CEOs try to accomplish one goal and they inherit another problem,'' David Hendler, senior analyst for banks at CreditSights Inc. said in an interview. ``Ken wanted to be a strong, surviving large national player, and in order to do that people think you have to be on the West Coast as well as on the East Coast.''

Smith, who took the chairman's job in May, heads Tippet Capital, a Raleigh, North Carolina-based investment firm. He's been a director of First Union or Wachovia since 1987.

To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina, at 6587 or dmildenberg@bloomberg.net.

Last Updated: June 2, 2008 10:36 EDT