WaMu to slash 3,150 jobs
Facing 4th-quarter loss, bank cuts dividend 73% and sets office closures
By BILL VIRGIN
P-I REPORTER
Washington Mutual Inc. said Monday that it plans to lay off about 3,150 employees -- including more than 500 in this state -- close more than half of its home loan centers and slash its dividend by 73 percent as it tries to cope with the continuing deterioration of the national housing and mortgage markets.
In an announcement that was laden with indicators of just how ugly the situation is getting for the housing finance industry in general and WaMu in particular, the Seattle-based consumer bank and home loan company said it will report a loss for the fourth quarter because of a $1.6 billion charge to write down the value of its home-loan business.
The quarter also will include the cost of closings and layoffs, as well as adding a larger-than-expected amount to its reserve fund to cover potential losses on loans.
The common stock dividend, meanwhile, will be cut from the current 56 cents a share to 15 cents a share, reversing a trend of a dozen years of regular quarterly increases.
The dividend cut was widely expected, given that the company's third-quarter earnings per share were lower than the dividend payout.
But the warnings that credit problems are getting worse and more money will be set aside to cover potential losses were something of a surprise, even though the company has had to increase its estimate of additions to its reserve fund several times already.
"It's more than I expected on the credit cost side," said James Bradshaw, banking analyst with D.A. Davidson & Co. in Lake Oswego, Ore. "There's no sign credit (quality) is turning around."
Investors signaled their unhappiness with the news in the after-hours session (the announcement was issued after the close of regular trading). WaMu's stock has been pummeled in recent months because of disappointing earnings and warnings that delinquencies and defaults in its loan portfolio are rising.
From a closing price of $44.41 a share in June, the stock finished the regular trading session Monday at $19.88, up 85 cents on the day. In after-hours trading, the stock fell to $18.10.
The big questions ahead for the company now include:
# Does the stock price already reflect all the bad news, or might it fall even more?
# Will investors have patience with Chief Executive Kerry Killinger and senior management as they attempt to turn the company around?
# Has the bottom been reached on credit deterioration?
"My preliminary guess is they're not going to make any money next year," Bradshaw said. "It's hard to get excited about the stock."
Moody's Investors Services, which downgraded several ratings on WaMu, said it had expected WaMu's profitability to recover in 2009. "Moody's now believes this will not occur until 2010."
WaMu said the reductions in expenses, the additions to loan loss reserves, the dividend cut and the planned sale of convertible preferred stock to raise $2.5 billion in additional capital "should ensure that it has the financial strength to address difficult conditions in the credit and housing markets in 2008."
It also said it will emphasize its retail banking business, which has been performing relatively well in the midst of the decline in home lending.
The home-lending business will endure the brunt of the cuts. WaMu said it plans to drop all lending in the subprime mortgage channel.
The subprime market, made up of those borrowers with poor credit histories, is where the earliest and most dramatic problems with delinquent and defaulted loans have surfaced. Problems are now starting to appear in the prime mortgage business, not only in the volume of loan applications but in credit quality.
"Washington Mutual remains committed to providing mortgage products to its customers," the company said in a statement. "However, the mortgage market is undergoing a fundamental shift due to credit dislocation and a prolonged period of reduced capital markets liquidity." The company said the national market for mortgage originations will shrink from $2.4 trillion in 2007 to $1.5 trillion in 2008.
WaMu said it will close 190 of 336 home loan centers and sales offices, including six in Washington, as well as nine home-loan processing and call centers around the country.
That will result in the elimination of 2,600 home loan positions, about 22 percent of the staff in that operation. WaMu plans to do more home lending through retail branches.
WaMu is also cutting 550 corporate and support positions. Most layoffs will take effect by the end of January.
Also being closed is WaMu Capital Corp., a broker-dealer in mortgage-backed securities.
Washington Mutual has been cutting employment corporatewide (and shifting some work to offshore vendors) for several years in the face of a declining home-loan industry. In its most recent earnings report, the company put total employment at just under 50,000; it had more than 60,000 employees in 2005.
The company has 5,400 employees in Seattle, 6,038 in King County and 7,310 in Washington. The layoffs will affect 540 employees in Washington, including 380 in Seattle.
WaMu said it will take a $1.6 billion write-off of the goodwill on the balance sheet for its home-loan business, resulting in a loss for the fourth quarter. The cuts and closings will cost $140 million, to be charged against fourth-quarter earnings, but are expected to reduce expenses by $500 million next year.
It will also set aside $1.8 billion to $2 billion for loan losses in the first quarter, up from $1.5 billion to $1.6 billion in the fourth quarter, with charge-offs "expected to increase significantly."
For all the speculation about what's ahead for WaMu, one subject that isn't the topic of much conversation is a possible takeover of the company, even though its stock price is down sharply.
"In a perverse way, the depth of the credit problems make it difficult to view them as a takeover candidate," Bradshaw said, since whoever might acquire it would be dealing with the same problems.
Fitch Ratings, which also issued ratings cuts on WaMu, said its downgrade "incorporates the expectation for further, meaningful asset quality deterioration in the residential mortgage portfolio and moderate softening in other consumer exposures, including credit card."
BY THE NUMBERS
49,748: Total number of WaMu employees on Sept. 30
3,150: Approximate number of WaMu employees that will be laid off
5,400: Number of WaMu employees in Seattle
380: Number of those that will be laid off
$19.88: WaMu stock's closing price Monday
$44.41: WaMu stock's price six months ago
P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattlepi.com.
Visit DiversityJobs.com for information on Diversity in the workplace
By BILL VIRGIN
P-I REPORTER
Washington Mutual Inc. said Monday that it plans to lay off about 3,150 employees -- including more than 500 in this state -- close more than half of its home loan centers and slash its dividend by 73 percent as it tries to cope with the continuing deterioration of the national housing and mortgage markets.
In an announcement that was laden with indicators of just how ugly the situation is getting for the housing finance industry in general and WaMu in particular, the Seattle-based consumer bank and home loan company said it will report a loss for the fourth quarter because of a $1.6 billion charge to write down the value of its home-loan business.
The quarter also will include the cost of closings and layoffs, as well as adding a larger-than-expected amount to its reserve fund to cover potential losses on loans.
The common stock dividend, meanwhile, will be cut from the current 56 cents a share to 15 cents a share, reversing a trend of a dozen years of regular quarterly increases.
The dividend cut was widely expected, given that the company's third-quarter earnings per share were lower than the dividend payout.
But the warnings that credit problems are getting worse and more money will be set aside to cover potential losses were something of a surprise, even though the company has had to increase its estimate of additions to its reserve fund several times already.
"It's more than I expected on the credit cost side," said James Bradshaw, banking analyst with D.A. Davidson & Co. in Lake Oswego, Ore. "There's no sign credit (quality) is turning around."
Investors signaled their unhappiness with the news in the after-hours session (the announcement was issued after the close of regular trading). WaMu's stock has been pummeled in recent months because of disappointing earnings and warnings that delinquencies and defaults in its loan portfolio are rising.
From a closing price of $44.41 a share in June, the stock finished the regular trading session Monday at $19.88, up 85 cents on the day. In after-hours trading, the stock fell to $18.10.
The big questions ahead for the company now include:
# Does the stock price already reflect all the bad news, or might it fall even more?
# Will investors have patience with Chief Executive Kerry Killinger and senior management as they attempt to turn the company around?
# Has the bottom been reached on credit deterioration?
"My preliminary guess is they're not going to make any money next year," Bradshaw said. "It's hard to get excited about the stock."
Moody's Investors Services, which downgraded several ratings on WaMu, said it had expected WaMu's profitability to recover in 2009. "Moody's now believes this will not occur until 2010."
WaMu said the reductions in expenses, the additions to loan loss reserves, the dividend cut and the planned sale of convertible preferred stock to raise $2.5 billion in additional capital "should ensure that it has the financial strength to address difficult conditions in the credit and housing markets in 2008."
It also said it will emphasize its retail banking business, which has been performing relatively well in the midst of the decline in home lending.
The home-lending business will endure the brunt of the cuts. WaMu said it plans to drop all lending in the subprime mortgage channel.
The subprime market, made up of those borrowers with poor credit histories, is where the earliest and most dramatic problems with delinquent and defaulted loans have surfaced. Problems are now starting to appear in the prime mortgage business, not only in the volume of loan applications but in credit quality.
"Washington Mutual remains committed to providing mortgage products to its customers," the company said in a statement. "However, the mortgage market is undergoing a fundamental shift due to credit dislocation and a prolonged period of reduced capital markets liquidity." The company said the national market for mortgage originations will shrink from $2.4 trillion in 2007 to $1.5 trillion in 2008.
WaMu said it will close 190 of 336 home loan centers and sales offices, including six in Washington, as well as nine home-loan processing and call centers around the country.
That will result in the elimination of 2,600 home loan positions, about 22 percent of the staff in that operation. WaMu plans to do more home lending through retail branches.
WaMu is also cutting 550 corporate and support positions. Most layoffs will take effect by the end of January.
Also being closed is WaMu Capital Corp., a broker-dealer in mortgage-backed securities.
Washington Mutual has been cutting employment corporatewide (and shifting some work to offshore vendors) for several years in the face of a declining home-loan industry. In its most recent earnings report, the company put total employment at just under 50,000; it had more than 60,000 employees in 2005.
The company has 5,400 employees in Seattle, 6,038 in King County and 7,310 in Washington. The layoffs will affect 540 employees in Washington, including 380 in Seattle.
WaMu said it will take a $1.6 billion write-off of the goodwill on the balance sheet for its home-loan business, resulting in a loss for the fourth quarter. The cuts and closings will cost $140 million, to be charged against fourth-quarter earnings, but are expected to reduce expenses by $500 million next year.
It will also set aside $1.8 billion to $2 billion for loan losses in the first quarter, up from $1.5 billion to $1.6 billion in the fourth quarter, with charge-offs "expected to increase significantly."
For all the speculation about what's ahead for WaMu, one subject that isn't the topic of much conversation is a possible takeover of the company, even though its stock price is down sharply.
"In a perverse way, the depth of the credit problems make it difficult to view them as a takeover candidate," Bradshaw said, since whoever might acquire it would be dealing with the same problems.
Fitch Ratings, which also issued ratings cuts on WaMu, said its downgrade "incorporates the expectation for further, meaningful asset quality deterioration in the residential mortgage portfolio and moderate softening in other consumer exposures, including credit card."
BY THE NUMBERS
49,748: Total number of WaMu employees on Sept. 30
3,150: Approximate number of WaMu employees that will be laid off
5,400: Number of WaMu employees in Seattle
380: Number of those that will be laid off
$19.88: WaMu stock's closing price Monday
$44.41: WaMu stock's price six months ago
P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattlepi.com.
Visit DiversityJobs.com for information on Diversity in the workplace
Labels: layoffs, Wamu, Washington Mutual
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