WaMu to Cut More Than 3000 Jobs Amid Mortgage Losses

December 10, 2007 No Comments »

In a statement released after market close, Washington Mutual said it will have to set aside far more than expected for loan losses, leading to a fourth quarter loss and massive restructuring.

The Seattle-based thrift and mortgage lender plans to cut more than 3,000 jobs and slash its dividend by 73 percent, while also offering $2.5 billion in convertible preferred stock in a bid to raise capital.

“A substantial infusion of new capital, significant expense reductions, the major change in our home loans business, and our planned dividend reduction all combine to further fortify WaMu’s strong capital and liquidity position,” said WaMu Chairman and Chief Executive Officer Kerry Killinger.

“These actions will also better position us to pursue various initiatives, particularly in our leading retail banking business — which is at the core of our business strategy.”

WaMu will discontinue all lending through it subprime mortgage channel, closing roughly 190 of 336 home loan centers and sales offices, and nine Home Loans processing and call centers.

The layoffs will affect 22 percent of its Home Loans staff, or roughly 2,600 employees, along with 550 corporate jobs and support positions.

The thrift will also close WaMu Capital Corp., its institutional broker-dealer business, as well as its mortgage banker finance warehouse lending operation.

The cost of these so-called “expense reduction measures” will result in approximately $140 million in additional expenses in the fourth quarter.

The restructuring will be accompanied by an increase in retail mortgage lending via its many banking branches nationwide, a route many large banks are leaning towards.

The banking giant will take a fourth quarter after-tax charge of approximately $1.6 billion for the writedown of all the goodwill associated with the Home Loans business, and now expects its fourth quarter provision for loan losses to be between $1.5 and $1.6 billion.

The company currently expects its first quarter 2008 provision for loan losses to range between $1.8 to $2.0 billion, and to remain elevated through 2008.

WaMu believes total U.S. mortgage loan origination will fall to $1.5 trillion in 2008, the lowest level in eight years, from an estimated $2.3 trillion to $2.4 trillion this year.

Shares of Washington Mutual fell $1.59, or 8.00%, to $18.29 in after hours trading.

Update: WaMu upped their preferred stock offering to $3 billion.

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