WaMu loses $1.87B in fourth quarter
Washington Mutual Chief Executive Kerry Killinger on Thursday said he took responsibility for the company's dismal performance in 2007 ...
Seattle Times business reporter
Washington Mutual Chief Executive Kerry Killinger on Thursday said he took responsibility for the company's dismal performance in 2007 — including its first annual loss since Ronald Reagan was president and "Dynasty" was on the air — but insisted he and his team can turn things around without outside help.
Seattle-based WaMu, the giant thrift and home lender whose business has been savaged by the housing slump and credit-market meltdown, topped off a rotten 2007 by reporting a fourth-quarter loss of $1.87 billion, or $2.19 a share. That was enough to push WaMu $67 million, or 12 cents per share, into the red for the full year.
WaMu last failed to make an annual profit in 1984, its second year as a publicly traded company.
"Clearly these results are disappointing, and as CEO I take responsibility," WaMu Chief Executive Kerry Killinger said in a conference call with investors and analysts.
In an interview with The Seattle Times before the call, Killinger said WaMu's board of directors "has been very supportive and has approved the plans we are executing" — indicating that, for now at least, his job as CEO is safe, despite a 65 percent plunge in WaMu's stock price in just the past three months.
"I am not satisfied with the current profitability levels of the company," Killinger added. "I am working very hard to return the company to much higher levels of profitability, which I believe it is capable of doing."
Killinger said he would forgo a cash bonus for 2007, and that bonuses for other senior executives will be cut by two-thirds to three-quarters.
After raising a net $2.9 billion last month by selling convertible preferred stock, WaMu has enough capital for the foreseeable future, Killinger said — both to manage its load of troubled debt and to pursue new growth strategies, such as opening 100 to 125 new branches this year.
As part of a massive cost-cutting and restructuring announced last month, WaMu is closing 190 of its stand-alone home-loan centers; the company plans to do much more of its mortgage business through its 2,200-plus retail branches.
In the interview, Killinger declined to discuss specifically reports WaMu has talked with JPMorgan Chase about a possible buyout, but his comments strongly suggest that WaMu intends to try to ride out the current storm on its own.
The company set aside more than $1.5 billion in the fourth quarter to cover bad loans, bringing the total set aside in 2007 to more than $3.1 billion.
Chief Financial Officer Tom Casey reaffirmed the company's forecast, first made last month, that it would set aside $1.8 billion to $2 billion this quarter and similar amounts each quarter for the rest of 2008.
However, Casey later said those figures could rise even higher, depending on how successful the company is at packaging and reselling credit-card loans.
Typically, he said, WaMu sells off about 65 percent of the total card balances it manages. But if more of those balances stay on WaMu's books for longer than expected, the company might have to set aside more money for expected defaults.
Nonperforming assets, such as past-due loans and foreclosures, rose to 2.17 percent of total assets at quarter's end, compared with 1.65 percent at the end of the third quarter and 0.8 percent a year ago.
WaMu's home-loans segment lost $1.96 billion all by itself, mainly because of a $1.78 billion pre-tax charge taken to write-off all the goodwill associated with the business. Total loan volume in the quarter fell to $19.1 billion, 49.1 percent below the $37.5 billion recorded a year earlier.
Killinger ticked off several policy moves that could bolster the nation's housing sector: an interest-rate cut by the Federal Reserve; a short-term economic-stimulus package of the sort being discussed in Congress; and a temporary increase in the size of mortgage loans Fannie Mae and Freddie Mac are allowed to buy.
But Walter O'Haire, senior analyst with Celent, a financial research and consulting firm in Boston, was skeptical any of those measures would do much to benefit WaMu's home-loan business.
"The three potential positives identified as assisting WaMu's mortgage business — lower interest rates, a government stimulus and an increase in the conforming loan limit — are all dependent on outside factors over which the company has little control," O'Haire said in an e-mailed statement. "What does emerge with clarity is that WaMu has a large amount of 2005, 2006 and 2007 vintage loans that are going to provide more pain in 2008."
One bright spot was WaMu's retail-banking segment, which recorded a $278 million profit in the fourth quarter. The company added 74,493 checking accounts in the quarter, and saw income from banking fees grow by 13 percent.
WaMu's credit-card division, acquired from Providian Financial in 2005, made $92 million in the quarter, up from $66 million in the third quarter but down 35.2 percent from the fourth quarter of 2006.
But as the broader economy softened late last year, card losses rose to 6.9 percent of total balances, from 6.37 percent in the third quarter. Killinger predicted card losses would continue rising this year, to as much as 9.5 percent.
WaMu reported its earnings after the close of regular New York Stock Exchange trading, in which its shares dropped 93 cents to close at $12.46. In after-hours activity the stock traded as high as $13.42 and as low as $11.71 but settled at $12.43.
Drew DeSilver: 206-464-3145 or email@example.com
Washington Mutual was sued by a real-estate appraiser who claimed her contract with the biggest U.S. savings and loan was terminated because she prepared appraisals that indicated market conditions were declining.
California appraiser Jeniffer Wertz earned more than $100,000 a year doing two or three appraisals a day for Washington Mutual until May, when she refused to revise reports to falsely indicate market conditions were stable, according to a complaint filed Jan. 10 in California state court in Sacramento.
The independence of appraisers has been raised as a potential factor in the subprime-mortgage crisis. In November, New York Attorney General Andrew Cuomo sued First American, the largest U.S. title insurer, for allegedly inflating home values under pressure from Washington Mutual.
First American, its eAppraisIT unit, Lenders Services, and its parent Fidelity National Information Services, also are defendants in Wertz's suit. In 2006, WaMu began to outsource its appraisal services through eAppraiseIT and LSI, according to the complaint. After Wertz refused to change her appraisals, she claimed they refused to give her work.
Copyright © 2008 The Seattle Times Company
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