Washington Mutual profit up 8%

Times Staff Writer

Washington Mutual Inc., the nation’s largest savings and loan, Wednesday posted an 8% increase in second-quarter earnings and said it would quit making certain risky loans to borrowers with blotchy credit.

City National Corp. of Beverly Hills, the largest commercial bank based in Southern California, said profit rose 1%. Pasadena’s East West Bancorp, the second-largest Southland bank, beat expectations with a 10% gain. But Downey Financial Corp., a Newport Beach S&L;, said net income slid 32%.

Seattle-based Washington Mutual said growth in retail banking and credit cards helped push profit to $830 million, or 92 cents a share, up from $767 million, or 79 cents, a year earlier.

Wall Street had expected 89 cents. The results, issued after stock markets closed, sent Washington Mutual’s shares up $1.53, or 3.6%, to $43.14 after hours.


The company’s Long Beach Mortgage Co. unit, a major lender to high-risk borrowers, has been hurt by rising defaults and has cut back sharply on loan volume. Washington Mutual said from now on it would require sub-prime borrowers to fully document their income and assets, doing away with so-called stated income loans.

The Seattle company also said it would no longer offer sub-prime mortgages with rates that could ratchet sharply higher after an initial two years of fixed lower payments. Three other big sub-prime lenders -- Countrywide Financial Corp., Option One Mortgage Corp. and First Franklin Financial Corp. -- also swore off such “2-28" loans this week.

ACORN, an advocacy group, has called on all sub-prime lenders to do away with such loans, saying borrowers can’t afford them when the teaser rates run out. It also criticized sub-prime loans with three years of teaser rates -- a loan Washington Mutual is also pledging to eliminate.

City National earned $59.2 million, or $1.19 a share, up from $58.7 million, or $1.16, as growth in fee income offset a lower lending profit margin. The earnings, announced after markets closed, met Wall Street estimates. City National shares fell $1.71 to $73.94 in regular trading.

East West, which caters to Chinese Americans, said net income rose to $40.5 million, or 66 cents a share, from $36.6 million, or 59 cents. East West also said regulators had approved its purchase of Desert Community Bank in Victorville. The announcements came after East West shares fell 84 cents to $38.20 in regular trading.

Downey, an adjustable-rate mortgage lender, said higher loss provisions and shrinking lending margins caused profit to drop to $32.7 million, or $1.17 a share, from $48.2 million, or $1.73 a share. Its stock fell $1.76 to $62.12.