Mortgage Loan Losses Put Pressure On Washington Mutual
One of the nation’s biggest mortgage providers, Washington Mutual, said the sale of one business unit helped grow fourth-quarter profits by 22 percent, even as it struggled with a slowdown in the national housing market.
According to the Seattle Times, WaMu reported a profit of $1.06 billion, or $1.10 a share, up from $865 million, or 85 cents a share, a year ago. The company said it benefited from an after-tax gain of $415 million on the December 31 sale of its asset-management unit.
The gain more than offset expenses from cost-cutting efforts. But results disappointed investors, concerned that a difficult environment is hurting its home mortgage business.
WaMu has seen a reduction in its net interest margin — the gap between what it charges for loans and what it pays for deposits — as short- and long-term rates have converged in the past year.
That change was partly to blame for a decline in the company’s mortgage loan business, which reported a fourth-quarter loss of $122 million.
WaMu also blamed a national slowdown in new-home sales and an increase in delinquencies on subprime or bad credit mortgage loan transactions, which are aimed at borrowers with tarnished credit.
“Our loan-loss reserves have had to increase because of the deterioration of some credit,” Chairman and CEO Kerry Killinger said in an interview Wednesday, referring to the subprime market.
WaMu beat analysts’ average profit estimate of 88 cents a share. But its revenue, at $3.6 billion, fell short of the $3.7 billion analysts had been expecting, TheStreet.com reported.
“Certainly, there were some big disappointments, especially in the subprime lending area,” said Frederick Cannon, an analyst at Keefe, Bruyette & Woods in San Francisco.
Killinger said despite the company’s bad credit mortgage problems, he fully expects cost-cutting efforts from the past year, including the elimination of more than 10,000 jobs, will pay off in 2007.
“We got accomplished in 2006 what we needed to do,” he said.