Mortgage losses prompt WaMu to cut more jobs
Washington Mutual Inc., citing growing mortgage losses, said Monday that it would slash its dividend by almost three-quarters, cut 3,150 jobs and raise $2.5 billion in new capital.
The savings and loan, one of the largest U.S. home mortgage lenders, said a sharp downturn in demand for home loans was forcing it to eliminate 2,600 mortgage and 550 corporate support jobs, or 11% of its total staff, and close 190 of 336 mortgage offices.
The company, which in September cut 1,000 jobs as it dismantled much of its sub-prime mortgage operation, said Monday it would stop making loans to borrowers with poor credit.
Washington Mutual said it was reducing its quarterly dividend by 73% to 15 cents a share. At the previous rate of 56 cents, the company’s beaten-down stock offered an annualized dividend yield of 11%.
The announcement came after the end of regular trading, during which the stock rose 85 cents, or 4.5%, to $19.88. In after-hours trading, the shares tumbled $1.76 to $18.12. The stock has declined 56% this year, the worst performance in the 24-member KBW Bank index.
“It’s just another casualty in the mortgage tsunami sweeping over the country,” said Sean Egan, managing director of debt rating firm Egan-Jones Ratings Inc.
Washington Mutual was the sixth-largest U.S. mortgage company for the first nine months of 2007, according to trade publication Inside Mortgage Finance.
Late Monday, Moody’s Investors Service cut the long-term debt ratings of the Seattle-based company by two notches, bringing the bank’s ratings closer to junk status. Fitch Ratings also downgraded Washington Mutual’s debt.
“Given all of the write-offs that everyone has been taking -- or losses they’ve been announcing -- we all knew this shoe had to fall and that it was just a matter of time before it did,” said Charles Lieberman, chief investment officer of Advisors Capital Management in Paramus, N.J.
Washington Mutual offered a bleak assessment of the mortgage market, predicting that industrywide home-loan originations would shrink 40% in 2008 to $1.5 trillion from about $2.4 trillion this year.
“They’re clearly concerned the industry will stay in a negative mode for an extended period,” said Richard Bove, an analyst at Punk Ziegel & Co. in Lutz, Fla. “The fact they’re laying off so many people indicates they’re concerned this is not just a one-time event.”
Bove rates the stock “market perform.”
The bank also said it would close WaMu Capital Corp., its institutional broker-dealer, and rely on third-party broker-dealers to sell mortgage-backed securities.
The parent company expects to report a net loss in the fourth quarter after recording a $1.6-billion write-down of its home-loan business. The noncash charge would result in a net loss for the quarter.
And as a result of rising loan losses and late payments, Washington Mutual said it would add $1.5 billion to $1.6 billion in the fourth quarter to its provision for such losses, or twice the level of expected net charge-offs.
The company expects the provision, which eats into profit, to rise to as much as $2 billion in the first quarter as charge-offs climb.
“When you’re that exposed to a mortgage market that is this disrupted, these kinds of changes were inevitable,” said Adam Compton, head of U.S. financial service stock research at RCM Global Investors in San Francisco.
