Washington Mutual reported its first year-over-year profit gain in five quarters yesterday, topping Wall Street expectations, thanks to...
Washington Mutual reported its first year-over-year profit gain in five quarters yesterday, topping Wall Street expectations, thanks to a turnaround in its home-loan business.
But Chief Executive Kerry Killinger assured analysts the company is taking steps to protect itself against a downturn in the housing sector, because “you could eventually see a slowing of growth or even declines in some markets.”
With that in mind, the Seattle-based company sold more of its adjustable-rate mortgages than usual during the second quarter, and has taken strategic steps to diversify its business.
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Last month, it announced plans to acquire credit-card company Providian Financial.
“We have left our thrift legacy far behind,” Killinger said during a conference call with analysts yesterday, referring to WaMu’s roots as an institution that made primarily single-family home loans.
For the second quarter, WaMu reported profit of $844 million, or 95 cents a share, up 73 percent from a year ago and 12 cents better than anticipated by Wall Street analysts polled by Thomson Financial.
WaMu stock rose 73 cents yesterday to $41.73. The company released its results after the markets closed.
The earnings pickup hinged largely on improvements in WaMu’s home-loan business, which posted a loss of $59 million in the second quarter of 2004. The company has worked to integrate the mortgage computer systems of various companies it bought, and to improve the way it hedges against interest-rate risk.
The result was profit of $209 million in that segment during the quarter, on loan volume that fell 20 percent to $44.86 billion.
The retail-banking area also boosted earnings, contributing $579 million to second-quarter income, up 20 percent from a year earlier.
WaMu said yesterday it will slow the pace at which it opens retail branches, from 250 a year to between 200 and 225 branches this year, partly because competition for new locations is strong. Some analysts had criticized the company for growing its retail network too quickly.
Net income in WaMu’s commercial group, which includes subprime lender Long Beach Mortgage, dropped 18 percent to $151 million in the quarter. Loan volume in that segment grew 33 percent to $11.06 billion, driven by record volume of $8.2 billion at Long Beach, which makes home loans to people with spotty credit.
WaMu continued to have strong loan volumes in its multifamily-lending business. It is the nation’s largest multifamily lender and tends to make loans of $500,000 to $5 million for apartment buildings.
WaMu also announced yesterday the election of former Starbucks CEO Orin Smith to its board of directors.
Killinger said he wants to continue growing WaMu’s portfolio of home equity, multi-family, subprime residential and credit-card loans.
He said WaMu is taking steps to ensure that Providian Financial is quickly and effectively integrated. That acquisition is expected to close early in the fourth quarter.
Frederick Cannon, a bank analyst with Keefe, Bruyette & Woods in San Francisco, agreed that WaMu has diversified its loan portfolio but said the company remains heavy in real-estate loans, like most retail banks.
“But not all real estate is the same, and right now most of the concern is about single-family homes in coastal markets,” Cannon said. “Washington Mutual has diversified away from single-family mortgages over the last five years.”
He upgraded the stock from “market perform” to “outperform” last week. Elaborating on that decision yesterday, he said, “The stock’s been dead in the water for two years, and good things are happening.”
Melissa Allison: 206-464-3312 or email@example.com