Washington Mutual’s Profit Falls

Washington Mutual Inc., the biggest U.S. savings and loan, said second-quarter profit fell 51% as rising interest rates damped consumers’ demand for mortgage loans.

Net income fell to $489 million, or 55 cents a share, from $995 million, or $1.07 a share -- excluding discontinued operations -- a year ago, the Seattle-based company said. It was expected to earn 60 cents, the average estimate of 12 analysts surveyed by Thomson First Call.

The bank said last month that its mortgage business might report a loss this year because the company hadn’t cut costs quickly enough to make up for a slump at the unit. Washington Mutual has been trying to reduce expenses by $1 billion since December.

“They certainly have lost management credibility,” Kevin McCloskey, a money manager at Federated Investors Inc., said before the results were released. He sold his Washington Mutual shares earlier this year. “You’ve seen them reduce forecasts throughout the year, and part of that was the mortgage business dropping off, and them still having too many people.”

The average rate on 30-year, fixed-rate mortgages rose to 6% last week from a 2004 low of 5.38%, touched during the week of March 19. Last month, the Federal Reserve lifted the benchmark overnight lending rate to 1.25% from 1%.

Washington Mutual reiterated a June forecast that it would probably earn $3 to $3.60 a share this year, less than its 2003 profit of $3.88 billion, or $4.21 a share.

The company’s shares fell 27 cents to $39.50 on Wednesday on the New York Stock Exchange. Washington Mutual reported its earnings after the markets closed.