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WaMu Realigns Resources

Strategy includes flow exit, layoffs and boosted sales force

September 14, 2007
(revised 9:30 a.m.)


photo of Coco Salazar

Washington Mutual has laid out plans to integrate subprime operations into its prime unit. The company said it migrated away from whole loan purchases and abandoned correspondent flow business. Related layoffs, however, will be completely offset by a boost to its sales force.

WaMu will eliminate about 1,000 jobs in its home loans group throughout the country, spokeswoman Sara Gaugle told in a telephone interview and via an e-mail. While end dates will vary for different groups of employees based on business need, a majority will be laid off by mid-November.

"While some of the changes we've made are in response to market conditions, they're also about accelerating our growth in our core businesses," she noted.

Consequently, WaMu Capital Corp. has migrated away from loan purchase-related activity and will no longer participate in conduit flow operations, which involve buying loans from mortgage bankers on a loan-by-loan basis, nor conduct mortgage banker finance business. Citing that the capital markets business "has felt the effect of a greatly changed secondary market environment," the unit will now primarily focus on managing WaMu loan production.

"We have retained the infrastructure and the capabilities of our top-tier structuring and distribution team of WaMu Capital Corp. so we continue to have the ability to securitize WaMu products internally," the e-mail read.

WaMu will also be integrating subprime lending into prime channels to create a single lending infrastructure across its wholesale, retail and consumer direct businesses. It will additionally consolidate three loan fulfillment centers located in Anaheim and San Diego, Calif, and San Antonio, Texas.

Of the 1,000 workers receiving pink slips, 210 support capital markets and mortgage banker financing, 75 are subprime employees, and 340 are loan fulfillment staff. The remainder of the layoffs will come from the corporate support group as a result of home loan actions, Gaugle said.

But WaMu intends to grow business across its retail, consumer direct and wholesale channels.

As a result, the Seattle-based lender will add 1,000 retail and banking loan consultants, which will bring to 4,000 the number of employees offering mortgages throughout its home loan and banking centers, according to Gaugle. An additional unspecified number of sales employees will be hired for its consumer direct sales force. And the combining of prime and subprime sales channels will create a sales force of 450 in the wholesale division.

As of June 30, 2007, WaMu had 12,735 home loan employees.

A majority of 210 subprime layoffs WaMu announced for Illinois and California were expected to be complete by Aug. 1.

Since the fourth quarter of 2005, WaMu has downsized home loan staff by 28 percent, Chief Executive Kerry Killinger said at a Lehman Brothers conference Monday. Overall in 2006, more than 10,000 employees were let go. The moves have resulted in annual expense run rate reducing to $8.5 billion in the second quarter this year from $9.1 billion in the last quarter of 2005.

The executive, noting that WaMu has intentionally reduced market share in areas where it has felt caution was warranted, said it was the sixth-largest home loan originator and fifth largest servicer last quarter, both down from third a year earlier. Its ranking as an originator of home equity loans, however, improved to fourth from fifth over that time.

WaMu reported second quarter volume at $41.3 billion, of which $9.9 billion was home equity production. The servicing portfolio had a balance of $709.2 billion at the end of June.

The company also reported it reduced its loans held-for-sale balance to $9 billion at the end of August from $19 billion at the end of June primarily through the transfer of nonconforming loans to its held-for-investment portfolio. Less than 1 percent of the transferred loans were nonperforming. The mark-to-market loss from the transferred loans is expected to be about $200 million, Killinger said.

Given weakening housing market conditions, the lender expects to nonperforming loans to continue increasing, which could lead to a higher level of charge-offs in the coming quarters. It expects loan loss provisioning for the year could be about $500 million greater than the full-year guidance it gave in July of $1.5 billion to $1.7 billion.

The CEO also noted borrowing costs and net interest margin could be negatively impacted if the recent rise in the 3-month London Interbank Offered Rate -- up 30 basis points in the past month to 5.7% -- is prolonged, as a majority of its short-term funding is tied to such index.

Nonetheless, while "we are very attentive to the short term challenges, it is just as important to keep our focus on the long term value creation potential for the company," Killinger said. "And we believe that value creation potential is excellent."

Coco Salazar is an associate editor and staff writer for

e-mail: [email protected]

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