Washington Mutual solidified its comeback in the third quarter, posting 22 percent more profit as it prepares for a slower housing market...
Washington Mutual solidified its comeback in the third quarter, posting 22 percent more profit as it prepares for a slower housing market.
Net income was $821 million, or 92 cents a share, beating analysts’ estimates by 2 cents, according to Thomson Financial. It was the second time in six quarters that the company had a year-over-year increase in profit.
“WaMu has done a lot of work to improve operations over the last two years, and this quarter shows they’re on track,” said Frederick Cannon, an analyst at Keefe, Bruyette & Woods.
“But they’re also concerned about housing prices, and they’re taking actions to try to protect themselves,” he said.
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Chief Executive Kerry Killinger said the mortgage industry may be headed for a shake-out and he ticked off a number of measures WaMu has taken to reduce its exposure, including selling a larger portion of its mortgages than in the past.
It also is selling some of the riskiest loans made in 2004 and 2005 by a unit that lends to people with damaged credit.
That doesn’t mean WaMu is pulling out of the mortgage business. On the contrary, Killinger said he wants to build market share.
But the company will sell many of the mortgages so that it doesn’t carry the risk on its books.
WaMu makes money from selling the loans and often earns fees after they are sold by continuing to service them — for example, by collecting monthly payments.
Like many banks, the Seattle-based company was hurt by rising interest rates.
The rates it pays for deposits tend to rise faster than the rates it charges for loans, shrinking the profit it makes from interest. Known as the net interest margin, it dropped to 2.61 percent in the third quarter from 2.77 percent a year ago.
“That’s kind of expected at this point in the cycle,” Killinger said. “When the Fed stops tightening interest rates, the reverse of all this will happen.”
The squeeze hurt profit in the company’s retail group, where earnings fell 5 percent from the second quarter but up 8 percent from a year ago.
Retail banking continues to drive WaMu’s earnings. The unit’s $548 million third-quarter profit was more than three times that of the home-loans group and more than twice the size of the commercial business.
WaMu expects to add 200 to 225 branches this year, which would give it about 2,140 branches.
Earnings from credit-card issuer Providian Financial, which WaMu acquired Oct. 1, were not included in third-quarter results.
That business has been renamed Washington Mutual Card Services.
Now that WaMu appears to have repaired problems it had last year, particularly in its mortgage operation, the company is no longer considered a prime acquisition target.
But news yesterday that Jamie Dimon will become chief executive of JPMorgan Chase earlier than expected has fueled rumors the acquisitive Dimon is eager to buy.
WaMu is among the possible targets, mostly because of its large presence in California, a market Dimon has his eye on.
“Its franchise on the West Coast is the envy of every bank with national aspirations that isn’t already there,” said Cannon, the Keefe, Bruyette & Woods analyst. “But in the near term, a sale is unlikely because the board and management team think they can achieve a much higher stock price independently.”
A WaMu spokesman declined to comment, citing a company policy against speculating on merger-and-acquisition rumors.
Melissa Allison: 206-464-3312 or email@example.com