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Washington Mutual Posts 8.9% Drop in Profit

October 19, 2006|From Times Staff and Wire Reports

Washington Mutual Inc., the largest U.S. savings and loan, said third-quarter profit declined 8.9%, missing analysts' estimates, as demand for home mortgages flagged and short-term interest rates climbed.

Net income dropped to $748 million, or 77 cents a share, from $821 million, or 92 cents, a year earlier, the Seattle-based bank said.

Earnings in the quarter included $64 million in costs from the sale of a mortgage-servicing unit to Wells Fargo & Co., announced in July, and expenses from cost-cutting efforts. Excluding those costs, profit would have been $812 million, or 84 cents a share, based on calculations by Bloomberg News. The average forecast of 20 analysts surveyed by Thomson Financial was 93 cents a share. Thomson doesn't say what its estimates exclude.

"We remain confident in our strategy to reposition the company and set the stage for stronger performance in 2007," Chief Executive Kerry Killinger said in a statement.

Two Southland banks also reported earnings Wednesday.

City National Corp. of Beverly Hills said third-quarter profit fell slightly as rising short-term interest rates forced it to pay its depositors more.

City National earned $59 million, or $1.20 a share, down from $59.8 million, or $1.17, a year earlier. Fee income rose by 21% and loans by 12%. But deposits were flat and shifted from checking accounts to higher-interest certificates of deposit, pinching the bank's profit margin.

City National announced the results after the close of regular trading, where its shares fell 75 cents to $67.20. The stock fell to $66 in the after-hours trading.

Fast-growing East West Bancorp, meanwhile, said third-quarter earnings jumped 24%, with loans up by nearly a third, offsetting sharply higher costs for deposits and overhead expenses.

Pasadena-based East West, whose clientele includes many Chinese Americans, earned $35.6 million, or 58 cents a share, up from $28.6 million, or 52 cents, a year earlier.

East West announced results after the markets closed. Its stock fell a nickel to $37.01, and was little changed in the after-hours market.

Shares of Washington Mutual fell 6 cents to $43.71. It has cut more than 9,700 jobs, or 16% of its workforce, so far this year.

Killinger reduced Washington Mutual's dependence on mortgages after the Federal Reserve raised short-term interest rates 17 times, slowing demand for home loans. The bank also is selling its mutual fund subsidiary to Principal Financial Group for $740 million.

Killinger is offsetting the lost revenue by focusing on consumer and small-business banking, which can offer higher profit margins.

"The biggest risks for WM include aggressive competitive pricing and the possibility that credit trends could weaken significantly," Piper Jaffray & Co. analysts Robert Napoli and Brian Hogan wrote in an Oct. 10 note to investors, citing potential underwriting mistakes and falling home prices.

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