Housing bust hits home and hurts Washington Mutual
This shouldn’t be a surprise but it is to me. Washington Mutual is warning of its losses and cutting its dividend. This is the largest thrift and loan in the US and a local business in the area I live in. On top of that they are starting their layoffs early and announced that 3,000 employees will be let go. I was just blogging about this the other day and then this happens just like the way I describe it. Mortgage companies have already laid off many employees in the past 12 months and now banks and brokerages will probably follow suit after they announce their latest quarterly losses. According to Fortune:
Losses are mounting at Washington Mutual (WM). The Seattle-based mortgage lender set plans Monday to cut more than 3,000 jobs in a bid to reduce costs as U.S. house sales continue their free fall. WaMu is also selling $2.5 billion worth of preferred stock to shore up its capital base and slashing its dividend by 73%.
WaMu is the third big financial firm to announce a capital replenishment plan Monday. Earlier, brokerage UBS (UBS) raised $11.5 billion in a deal with investors led by Singapore’s investment fund and bond insurer MBIA (MBI) scored a $1 billion stock sale to private equity firm Warburg Pincus. Shares of both companies rose on the news, which investors took as evidence that there is plenty of capital available, even for struggling financial firms, at the right price.
But WaMu’s news is likely to be less well received, considering the dire forecasts the bank is making. WaMu said it will close more than half the home-loan unit’s sales centers, as WaMu prepares for a 40% drop in 2008 U.S. mortgage originations. The company plans a $1.6 billion goodwill writedown on its home loans business, a fourth-quarter loan loss provision of $1.5 billion to $1.6 billion, and a first-quarter loan loss provision as high as $2 billion.
Just a month ago, WaMu was projecting total loan losses for the fourth and first quarters of around $2.6 billion. Now it sees those losses about a billion dollars higher. The shift brings to mind comments CEO Kerry Killinger made at last month’s investor day. “We’ve taken every measure possible to mitigate the effects of the current environment,” he said, but “no one knows for sure what’s going to happen.” That’s all too obvious by now.
With many thrifts, banks, brokerages, builders, and any real estate related fields announcing losses and layoffs, do you think lowering interest rates will stop a recession from taking place? Also, what do you think of the latest plan to bail out subprime borrowers by the government’s plan to freeze teaser rates on loans?
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I’m not sure what’s going to stop the recession from taking place, but I’m pretty sure they’ll figure it out before the value of the dollar sinks to far to be worth anything.
I don’t know if this “freeze” will do the trick because I don’t know that that will do much on interest only loans.. (I don’t know if those fit into your teaser rate category) And on that front, I think Realtors are to blame too for not looking out for their clients, and caring more about their commissions.
Bush Mackel’s last blog post..Fixing Up – Bush Mackel (Part 2)
Hey RT,
They just lowered the rate again. It was expected. I don’t know if a cheaper dollar is the solution. I think the government should create more jobs and inject money through growth and not just be putting more money in the system.
Your Filipino pesos have just become more valuable against the US dollar. That’s for sure.
Hi Bush,
I agree the teaser freezer move probably won’t do the trick.
As far as realtors, they are sales people just trying to make a living. They only get paid when they sell homes so they will always naturally have that as their first priority. It is still up to the homeowner to determine whether they can truly afford the loan.
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