SEATTLE Washington Mutual Inc., the nation's largest savings and loan, said Monday that problems in the mortgage and credit markets are forcing it to close offices, lay off more than 3,000 workers and set aside up to $1.6 billion for loan losses in its fourth quarter.
Additionally, Washington Mutual slashed its quarterly dividend 73 percent and said it plans a $2.5 billion offering of convertible preferred stock. Washington Mutual has not yet priced the offering, but increasing the total number of company shares will dilute their value for existing stockholders. In after-hours trading, the company's shares fell $1.73, or nearly 9 percent, to $18.15 following the company's announcement.
Seattle-based Washington Mutual dismantled much of its subprime mortgage business in September, cutting 1,000 jobs related to the sale of home loans to people with questionable credit. It folded the remaining subprime operations into its regular mortgage business.
Washington Mutual will now get out of the subprime mortgage business entirely. The company said it will close about 190 of its 335 home loan centers and sales offices, shut down nine call centers and eliminate 2,600 home loan workers, or about 22 percent of that division. The company also plans to cut 550 corporate and support jobs. In total, the layoffs will affect about 6 percent of its work force.
The company also said it will shutter Washington Mutual Capital Corp. and rely on third-party broker-dealers to sell mortgage-backed securities.
Utah will see none of its six home loan centers closed, but 20 positions will be eliminated in the state, according to WaMu spokesman Brad Russell. The cuts will be spread among the centers two in Salt Lake City and one each in Orem, Midvale, Park City and Ogden.
The changes are meant to address what Washington Mutual called "unprecedented challenges in the mortgage and credit markets" and will save the thrift $140 million in the fourth quarter. But the company still expects to post a loss, due in part to a $1.6 billion charge for the writedown of goodwill associated with the shrinking home loans business.
On top of that, Washington Mutual increased its loan-loss provision to $1.5 billion to $1.6 billion for the fourth quarter, from the $1.1 billion to $1.3 billion predicted by executives in early November.
For the first quarter of 2008, the company said it expects loan losses to total $1.8 billion to $2 billion. Loan losses will remain high throughout the year, Washington Mutual added.
The company also slashed its quarterly dividend to 15 cents per share from its most recent dividend of 56 cents per share, for savings of more than $1 billion.
Moody's Investors Service downgraded several long-term and short-term ratings for Washington Mutual and said in a statement that the move "was based on its view that credit losses from WaMu's mortgage operations will be noticeably higher than previously estimated." The credit rating agency said it doesn't expect Washington Mutual's profitability to begin to recover until 2010.Fitch Ratings also downgraded the company's credit rating to "A-" from "A," citing "worsening asset quality," and "extremely challenging conditions in the U.S. residential mortgage market."
Contributing: Bloomberg News. E-mail: firstname.lastname@example.org