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Bank's profit climbs by 22%

Washington Mutual misses fourth-quarter forecasts as its home loan unit posts a loss.

January 18, 2007|From Reuters

Washington Mutual Inc., the largest U.S. savings and loan, said Wednesday that fourth-quarter profit rose 22%, but results missed forecasts because of a loss in mortgage lending and weakened credit quality.

Net income rose to $1.06 billion, or $1.10 a share, from $865 million, or 85 cents, a year earlier. Excluding certain items, profit was 77 cents a share, according to Reuters Estimates, 11 cents below what analysts on average had expected.

The Seattle-based thrift, which is also the No. 3 U.S. mortgage lender, is the latest company to report difficulties in home lending as borrowing demand softens, profit margins narrow and loan delinquencies increase.

"We saw a continuation of difficult market conditions, with particular challenges in the sub-prime sector," Chief Executive Kerry Killinger said. "You had a combination of a housing market slowing, overcapacity, credit deteriorating, relatively low gain-on-sale margins, and an increase in repurchased loans."

Results included a $415-million gain from the sale of the thrift's WM Advisors Inc. unit to Principal Financial Group, and $100 million of charges to improve efficiency.

Washington Mutual eliminated 1,232 jobs from October to December, and 10,974 jobs, or 18% of its workforce, in 2006. It ended the year with 49,824 employees and said it had outsourced 4,000 jobs.

The home loans unit posted a $122-million fourth-quarter loss, compared with a year-earlier profit of $57 million, as loan volume fell 28%. For all of 2006, the unit lost $48 million, compared with a $1.03-billion profit in 2005.

"Major efficiency initiatives we wanted to get done, we did get done in 2006," Killinger said. "Moving forward, employment will match changes we'll do in driving productivity improvements and expanding," including adding 150 branches in 2007.

Washington Mutual shares fell 33 cents at $43.73. They fell an additional 48 cents in after-hours trading. The thrift released results after U.S. markets closed.

The company set aside $344 million for loan and lease losses, twice as much as in the third quarter, with credit cards accounting for more than half the increase.

It also expects to set aside $1.1 billion to $1.2 billion for credit losses in 2007, up from a previous forecast of $850 million to $950 million. Washington Mutual attributed much of the increase to an accounting change and the "difficult credit environment."

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