updated 4/15/2008 9:31:23 PM ET 2008-04-16T01:31:23

Washington Mutual, the nation’s largest savings and loan, said Tuesday it lost more than $1.1 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, but Chairman and CEO Kerry Killinger promised shareholders that Washington Mutual will turn around within a year.

“I know we’ve got the true grit in this company. We will get through this,” Killinger told more than 2,000 shareholders gathered at Seattle’s symphony hall for the bank’s annual meeting. “I want people to calm down and have a little faith.”

Washington Mutual, which last week estimated a loss of about $1.1 billion for the quarter, 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.

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.

“We have a very solid foundation for success,” he said.

Despite sharp rebukes from shareholders during a question-and-answer session, Washington Mutual’s board of directors was re-elected, 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 of the board and CEO 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 proposition 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.

“I think the story is what’s going on with the shareholder vote and those corporate governance issues,” Cannon said.

Groups representing government and union pension funds with stakes in Washington Mutual said leading into the annual meeting that some board members should be held accountable for not acting to protect the company amid mounting evidence that housing prices were set to collapse. They also felt other board members should be punished for doling out fat bonuses to executives while shareholders lost money.

Cannon said the company’s projections concerning home loans seemed appropriately conservative, but he wondered if the bank was being too optimistic about a turnaround in its credit card business, since the first quarter earnings report showed credit card losses were growing.

“The (credit card) situation seems to be getting worse,” he said.

Washington Mutual’s shares ended Tuesday up 31 cents, or 3 percent, to $10.66. In the last year they have traded between $44.66 and $8.72.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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