Washington Mutual Inc., the second-biggest U.S. mortgage lender, cut its estimate for 2003 earnings Tuesday and said it was firing 7,400 people because of a decline in home borrowing. Shares of the company had their biggest drop in more than two years and dragged down those of other lenders.
Washington Mutual, which has branches in 14 states, will earn $4.15 to $4.25 a share this year, Chief Executive Kerry Killinger said. Analysts surveyed by Thomson First Call had expected, on average, profit of $4.42.
Banks have been cutting prices and pushing lending margins lower to make up for waning mortgage demand, Killinger said. The average rate on a 30-year fixed-rate mortgage was at 6.02% last week, compared with 5.21% in July.
Washington Mutual fell $3.88, or 9%, to $39.97 on the New York Stock Exchange. That is the biggest decline for the Seattle-based company, which has $287 billion in assets, since Oct. 17, 2001.
Shares of other home lenders also fell. Countrywide Financial Corp. slumped 5%, Golden West Financial Corp. slid 2% and Wells Fargo & Co. declined 1%.
Chief Financial Officer Thomas Casey said at a New York conference with analysts and investors that the company planned to cut costs by $1 billion in the next six quarters by reducing staff and merging the technology systems of six companies Washington Mutual bought in 2001 and 2002.
Casey said 2,000 home loan staff members, mostly temporary and contract workers, would be cut in addition to 4,500 let go since August. A further 900 administrative and technology employees will lose their jobs, bringing the total reduction to about 12% of the workforce.
In 2004, per-share profit may be $4.30 to $4.80, Killinger said. The lowest forecast by analysts was $4.50.
U.S. Bancorp Piper Jaffray analyst Robert Napoli cut his rating to "market perform" from "outperform."
"People are spooked and nobody likes disappointments," said David Nelson, who helps manage about $200 billion at Legg Mason Funds Management Inc. in Baltimore, including 15.5 million Washington Mutual shares. "But it's trading at less than 10 times earnings with a 4% dividend yield and a heck of a long-term track record."
Washington Mutual shares have more than quadrupled over the last 10 years.
Mortgage loans and fees accounted for more than 60% of Washington Mutual's $10.3 billion in revenue in the first nine months of the year. About 90% of its loans are mortgages.
Since 1991, Killinger has spent more than $30 billion to expand, including buying Dime Bancorp Inc., New York's largest savings and loan, in 2002. Last month, seeking to raise capital to finance the opening of new branches, he agreed to sell Washington Mutual's consumer finance unit to Citigroup Inc. for $1.25 billion.
The bank has about 1,700 branches in 14 states. Killinger said he planned to open 250 branches in 2004, financed by the $400 million the sale of the consumer finance unit would bring. The sale would trim staff by an additional 2,500, Casey said.