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Thursday, October 19, 2006

WaMu: Housing Slowdown Driving Down Profit

In the past, we have drawn attention on Seattle Bubble to cutbacks or other unpleasant news for local mortgage-related businesses. The reason for this is to draw attention to the fact that the national slowdown in housing is having negative local effects here in the Seattle area. With that in mind, I thought I should probably mention today's Washington Mutual news.

Seattle-based Washington Mutual blamed a 9 percent drop in its third-quarter profit Wednesday on a slowdown in its mortgage business.

The drop was more severe than Wall Street analysts had expected, and shares of WaMu stock fell $1.70, or 3.89 percent, to $42.01 in after-hours trading.
...
WaMu has eliminated nearly 10,000 jobs in the past year as it tries to become more profitable.

"The housing market is clearly weakening, with the pace of housing price appreciation slowing in most regions of the country," Chief Executive Kerry Killinger told analysts and investors in a Wednesday conference call, held after the close of regular trading.

"We are also experiencing somewhat higher delinquencies and loan losses," he said.

WaMu reported a profit of $748 million, or 77 cents a share, for the July-through-September period. That was down from $821 million, or 92 cents a share, a year ago, marking the second consecutive quarter in which WaMu has failed to report a profit increase.

Analysts had been expecting a profit of 93 cents a share, according to a poll by Thomson Financial.

"Patience is running out," said Fred Cannon, an analyst at Keefe, Bruyette & Woods. "2007 is really going to be a watershed for the company."
It is important to note that $748 million is still an awful lot of money. I'm not trying to say that WaMu is in dire straights, I'm just pointing out that Seattle's economy is most certainly tied to nationwide events. If housing (or the economy as a whole) takes a serious downward turn nationwide, Seattle will not be unscathed. We're not that special.

(Amy Martinez, Seattle Times, 10.19.2006)

10 comments:

Darren Meade said...

Hello Everyone -

WAMU eliminated 10,000 this past year because they sold their $140 Billion dollar Mortgage Servicing Operation to Wells Fargo.

Washington Mutual has $350.70 Billion Dollars in Assets.

Therefore $748 Million while a large number is miniscule.

Additionally, I've provided the Press Release below which details the sale.

It should be noted that the servicing business had $7.5 Million Customers accounting for $1.25 Trillion in loans.

In a transaction which affects Billions and Trillions a temporary drop in price of a publicly held company is not uncommon.

Additionally, they sold a servicing business which would decrease cash flow. I am not sure how they will account for the sale price on the books.

Again, WAMU sold their mortgage servicing business. When they sold the business, employees were let go.

The business handled 7.5 million customers and 1.25 Trillion Dollars in Loans.

Anytime you remove 7.5 Million customers, you would have a decrease in earnings.

WAMU has $350.70 Billion in Assets STILL!

One last note, I personally do not like WAMU.

My goal was to simply provide the data behind the Press Release.

For Immediate Release
July 19, 2006

Washington Mutual to Sell $140 Billion in Mortgage Servicing and Milwaukee Servicing Operations to Wells Fargo

Seattle and Des Moines, Iowa — July 19, 2006 Washington Mutual, Inc. (NYSE:WM) and Wells Fargo & Company (NYSE:WFC) have entered into a definitive agreement to sell Washington Mutual’s entire portfolio of government mortgage servicing and a portion of its conforming, fixed-rate servicing portfolio – totaling approximately $140 billion and representing approximately 1.3 million servicing customers – to Wells Fargo. As part of the transaction, Washington Mutual will transfer to Wells Fargo its Milwaukee servicing operations. The effective date of the sale is expected to be July 31, 2006. Terms of the transaction were not disclosed.

To help ensure a smooth transition for customers, the two companies agreed to transfer to Wells Fargo the majority of Washington Mutual’s loan servicing and support staff at its Milwaukee operations with the transfer of servicing. The loan servicing and support employees who will join Wells Fargo are expected to transfer to Wells Fargo from the fourth quarter of 2006 through the first quarter of 2007.

“The sale is consistent with Washington Mutual’s strategy to deploy capital for maximum return and to focus our Home Loans business on higher margin products, while improving operating efficiency and reducing Mortgage Servicing Rights as a percentage of capital. The sale will also appropriately balance our servicing portfolio with our origination franchise,” said Steve Rotella, Washington Mutual’s president and chief operating officer.

“We’re also very pleased that including the Milwaukee support operations in this transaction will provide continued employment for the majority of our employees who have contributed to our servicing success,” said David Schneider, president of Washington Mutual’s Home Loans Group. “Rather than shifting our product mix over time, selling this portion of our loan servicing portfolio, which is predominately mortgage-only customers, allows us to execute on our Home Loans product strategy faster while ensuring a seamless transition. Our total servicing portfolio will include approximately 4 million customers with outstanding principal balance of $692 billion at the completion of this sale.”

“We welcome these 1.3 million mortgage servicing customers to Wells Fargo and the valued team members who will join us to serve them,” said Mark Oman, senior EVP of Wells Fargo & Company and head of the Home and Consumer Finance Group. “This acquisition will further leverage the operating scale of our servicing business. Consistent with our vision to satisfy all our customers’ financial needs, we look forward to building relationships with these customers so we can be there when they need their next financial product. We have a proven track record of earning more business from new customers. After this purchase, our total servicing portfolio will grow to 7.5 million customers with outstanding principal balances of approximately $1.25 trillion, served by team members from seven locations across the country.”

“We expect this transaction to exceed our required internal rate of return even before factoring in any cross-sell to these new customers,” said Howard Atkins, Wells Fargo & Company’s chief financial officer. “With this additional servicing we’ll continue to have a good balance between originations and servicing in our mortgage business and a healthy diversity of revenue sources, including our mortgage business, for our company as a whole.”

Wells Fargo grew its mortgage servicing portfolio at a compound annual growth rate of 25 percent since 1995. By comparison, this acquisition will increase Wells Fargo’s mortgage servicing portfolio by 13 percent.

Lehman Brothers and Kirkpatrick & Lockhart Nicholson Graham LLP were advisors to Washington Mutual on the transaction.

About Washington Mutual

Washington Mutual, through its subsidiaries, is one of the nation’s leading consumer and small business banks. At June 30, 2006, Washington Mutual and its subsidiaries had assets of $350.70 billion. The company has a history dating back to 1889 and its subsidiary banks currently operate more than 2,600 consumer and small business banking stores throughout the nation. Washington Mutual’s press releases are available at www.wamunewsroom.com.

About Wells Fargo

Wells Fargo & Company is a diversified financial services company with $500 billion in assets, providing banking, insurance, investments, mortgage and consumer finance to more than 23 million customers from more than 6,200 stores and the internet (wellsfargo.com) across North America and elsewhere internationally. Wells Fargo Bank, N.A. is the only bank in the United States to receive the highest possible credit rating, “Aaa,” from Moody’s Investors Service.


Cautionary Note About Forward-Looking Statements

In accordance with the Private Securities Litigation Reform Act of 1995, we caution you that this news release contains forward-looking statements about Washington Mutual and Wells Fargo, including (1) the expected effective date of the transaction, (2) the expected percentage of Washington Mutual loan and servicing employees who will join Wells Fargo as part of the transaction and when they are expected to join, (3) Wells Fargo’s expectation that the transaction will meet its required internal rate of return, and (4) Wells Fargo’s expectations as to the balance of its mortgage originations and servicing and the diversity of its revenue sources after the transaction. Do not unduly rely on forward-looking statements. They give Washington Mutual’s or Wells Fargo’s expectations, as the case may be, about its future and are not guarantees. The forward-looking statements speak only as of the date of this press release, and neither Washington Mutual nor Wells Fargo undertakes to update them to reflect changes that occur after that date. For factors that may cause actual results to differ from Washington Mutual’s or Wells Fargo’s expectations, refer to the company’s Annual Report on Form 10-K for the year ended December 31, 2005 and Quarterly Report on Form 10 Q for the quarter ended March 31, 2006.

PeakOil said...

I'm assuming you hve all this time on your hands because your business is in the dump.

Grivetti said...

I don't give a rip if darren posts, no big deal, but dude... come on, you know how to add links when you post? please, the endless quotations are nauseaus...

Darren Meade said...

Peak Oil -

That is all that you have as a rebuttal?

My understanding is that this forum was for discussions on the so called 'Bubble'.

Thank you for providing a link to some articles which I've written in the past.

Grivetti - I include all of the text because I want everyone to have access to the content in it's entirety.

In that way you can choose the context in which the content is being used.

I'd appreciate knowing how to actually include links with the posts.

In a previous post I tried to include some which did not seem to work.

Please be so kind as to provide your expertise.

Best Regards,

P.S. Oil Spill - Our business has actaully increased the last 4 weeks. I also believe that by summer 2007 we will experience a much smaller but robust refinance boom.

Many people are moving out of the hurricane regions into surrounding states which lower home prices, yet still on the water.

Additionally many investors are refinancing or putting thier properties into a portfolio, to buy additional properties.

The Tim said...

Grivetti's got a point.

There's no good reason to paste an entire article in a comment. Use links.

Example:
<a href="http://yourlinkhere.com/">linked text</a>

If that's too tough for you, just stick it into TinyURL.com and paste the generated link in plain text.

Furthermore Darren, I'm not in the habit of deleting comments just for the heck of it, but almost every single one of your comments has been wildly off-topic and rambling. The purpose of this post was to point out the fact that the housing slowdown affects Seattle businesses. I fail to see how a diatribe about WaMu's assets and a nearly 1,000-word press release have anything to do with this post.

If you're going to post, try to at least stay on topic.

Darren Meade said...

Hello Tim:

In your post which I commented on, you wrote the following; "The reason for this is to draw attention to the fact that the national slowdown in housing is having negative local effects here in the Seattle area. With that in mind, I thought I should probably mention today's Washington Mutual news.Seattle-based Washington Mutual blamed a 9 percent drop in its third-quarter profit Wednesday on a slowdown in its mortgage business."

The point of my post was to explain that WAMU sold the mortgage business to Wells Fargo.

Thereby when they sold the 7.5 million customers and took 1.25 Trillon of paper of the books, that would impact the third quarter which you referenced.

I also wanted to make it clear that Wells Fargo bought this servicing business. So the loss on the books of WAMU was not because of a housing decline.

In your article you also made a point to bring out the loss of $748 Million dollars.

I thought it fair to reference that WAMU has $350.70 Billion in assets. Therefore putting the above into context.

Best Regards,
Darren

plymster said...

It's interesting that at the same time that WaMu is selling their Mortgage Service Operation to Wells Fargo (basically all their standard, "old school" mortgages), they're buying up subprime lenders. Here's an article on it. I'd post the whole article, but I'm tired of scrolling.

Personally I don't think snapping up subprimes is a way to go during an obvious nationwide housing slowdown, with the Fed freaked out enough about inflation to do something nutty, and foreclosures on the rise (though still relatively low; but then foreclosures are a lagging indicator in a housing bust).

Say, didn't Ford, GM, United, US Air, and a slew of other mis-managed businesses have a lot of assets at one time?

The Tim said...

Darren,

See this is a great example of the problem I have with your comments. Did you even read my post? You said "In your article you also made a point to bring out the loss of $748 Million dollars." But in reality, the article I posted said: "WaMu reported a profit of $748 million."

So I still don't see how a lengthy diatribe about WaMu's assets is relevant

Darren Meade said...

Tim,

The problem you have with my posts is that they carry a contrary point which supply actual third party data.

I believe they call that dis/mis-information. The premise of your article was that WAMU's profits declined and this was another indicator of the housing slump. You then qouted the loss per share for YY from the previous quarter and mentioned the layoffs of employees.

It seems you do not want others to comment and provide other facts. Another poster on this site mentioned also that WAMU is buying subprime lenders.

3-months ago Bear Stearns purchased a subprime lender called Encore Credit.

The bottom line is that Wall Street doesn't seem to believe in the housing bubble either.

The reason I mention Wall Street is that you brought up Wall Street analysts opinions in your post.

If you are going to reference certain material, am I not allowed to respond?

The reason I found your site was that you took an article I wrote out of context. Therefore I responded.

Perhaps like other Housing blogs you will delete posts of anyone offering a coherent post.

Everyone complains that housing is not affordable. Do you know why?

Real Estate appreciates! The people that owned homes over the last 5 years now have created huge nest eggs for themselves. They should take that equity out of there homes and invest it.

The average YY appreciation of home owners has been 6.4% over the last 40 years.

The Tim said...

Sorry sport, my problem with your posts is exactly what I have been saying.

1) Excessively long cut-and-paste jobs. (If you have been paying attention, I have asked other people—that I agree with—to cut back on that same practice.)

2) Poor grammar makes your posts difficult to follow.

3) Your replies are often unrelated to the actual post, and seem to be more about pushing whatever your personal agenda is.

4) Your posts do not appear to be coherent arguments, but rather a random stream of miscellaneous and disjointed thoughts about how wrong it is to believe in any sort of a bubble.