-- Expects Net Loss for Fourth Quarter 2007 With Non-cash
Writedown of Home Loans Segment Goodwill
-- Non-cash Writedown Will Not Affect Key Capital Ratios or
SEATTLE--(BUSINESS WIRE)--Dec. 10, 2007--Washington Mutual, Inc.
(NYSE:WM) announced today a series of actions designed to address the
unprecedented challenges in the mortgage and credit markets by
strengthening the company's capital and liquidity and accelerating the
alignment of its Home Loans business with its retail banking
These actions include:
-- A capital offering of convertible preferred stock with
aggregate proceeds of approximately $2.5 billion;
-- A major reduction in company-wide noninterest expense of
approximately $500 million for 2008 as a result of a
substantial resizing of its Home Loans business and reduced
corporate support expense; and
-- A significant change in the strategic focus of its Home Loans
business in response to a changed market.
In addition, the company said its Board of Directors intends to
reduce the quarterly dividend rate to $0.15 per share from its most
recent quarterly dividend rate of $0.56 per share.
"A substantial infusion of new capital, significant expense
reductions, the major change in our home loans business, and our
planned dividend reduction all combine to further fortify WaMu's
strong capital and liquidity position," said WaMu Chairman and Chief
Executive Officer Kerry Killinger. "These actions will also better
position us to pursue various initiatives, particularly in our leading
retail banking business -- which is at the core of our business
The company will generate approximately $3.7 billion of tangible
equity as a result of the proposed capital issuance and the intended
reduction in the common dividend in 2008.
The company believes these actions, together with a significant
reduction in noninterest expense, should ensure that it has the
financial strength to address difficult conditions in the credit and
housing markets in 2008.
Resizing Home Loans Business to Adapt to Changed Conditions
WaMu remains committed to providing mortgage products to its
customers. However, the mortgage market is undergoing a fundamental
shift due to credit dislocation and a prolonged period of reduced
capital markets liquidity. As a result, WaMu expects national mortgage
originations to shrink to $1.5 trillion in 2008, down about 40 percent
from an estimated $2.4 trillion this year.
To reflect the changes in this market, WaMu will substantially
adjust and resize its Home Loans business and also reduce corporate
-- Discontinue all remaining lending through its subprime
-- Close approximately 190 of 336 home loan centers and sales
-- Close nine Home Loans processing and call centers;
-- Eliminate approximately 2,600 Home Loans positions, or about
22 percent of its Home Loans staff;
-- Eliminate approximately 550 corporate and other support
-- Close WaMu Capital Corp., its institutional broker-dealer
business, as well as its mortgage banker finance warehouse
These expense reduction steps will result in approximately $140
million in additional expenses in the fourth quarter. WaMu is
targeting company-wide noninterest expense at or below $8.0 billion
The resizing of its Home Loans business will be accompanied by an
acceleration in WaMu's previously announced strategy to expand its
focus on mortgage lending directly to customers through its retail
banking stores and other retail distribution channels. It will also
add bank loan consultants to support its profitable retail store
Non-cash Charge to Write Down Goodwill
As a result of the fundamental shift in the mortgage market and
the actions the company is taking to resize its Home Loans business,
WaMu will incur a fourth quarter after-tax charge of approximately
$1.6 billion for the writedown of all the goodwill associated with the
Home Loans business. This non-cash charge will result in a net loss
for the fourth quarter of 2007, but will not affect the company's
tangible or regulatory capital or liquidity.
Increasing Loan Loss Provision Ahead of Charge-Offs
Continued deterioration in the mortgage markets and declining
housing prices have led to increasing fourth quarter charge-offs and
delinquencies in the company's loan portfolio. As a result, the
company now expects its fourth quarter provision for loan losses to be
between $1.5 and $1.6 billion, approximately twice the level of
expected fourth quarter net charge-offs.
The company currently expects its first quarter 2008 provision for
loan losses to be in the range of $1.8 to $2.0 billion, reflecting an
increase in provision well ahead of charge-offs, which are also
expected to increase significantly during the quarter. The first
quarter range reflects the company's current view that prevailing
adverse conditions in the credit and housing markets will persist
While difficult to predict, the company also currently expects
quarterly loan loss provisions through the end of 2008 to remain
elevated, generally consistent with its expectation for the first
quarter of 2008. The company noted that there may be some additional
variation depending on the level of credit card securitization
activity during any quarter.
As described above, the company has also commenced a capital
offering of an aggregate of $2.5 billion in a new series of
convertible preferred stock. Lehman Brothers, Morgan Stanley & Co.,
Credit Suisse and Goldman, Sachs & Co. are serving as joint
book-running managers of the offering.
A copy of the final prospectus relating to the offering may be
obtained by contacting:
Lehman Brothers Inc., c/o Broadridge, Integrated Distribution
Services, 1155 Long Island Avenue, Edgewood, NY 11717, telephone:
1-888-603-5847 fax: 631-254-7140, or email:
Morgan Stanley & Co. Incorporated, Prospectus Department, 180
Varick Street, 2nd Floor, New York, NY 10014, telephone:
1-866-718-1649 or email: firstname.lastname@example.org.
Credit Suisse, Prospectus Department, One Madison Avenue, New
York, NY 10010, telephone: 1-800-221-1037.
Goldman, Sachs & Co., Attn: Prospectus Department, 85 Broad
Street, New York, NY 10004, telephone: 1-866-471-2526 or email:
This announcement is neither an offer to sell nor a solicitation
of offers to buy any of these securities in any jurisdiction in which
such an offer or solicitation is not authorized.
Filing of 8-K
The company has filed a Form 8-K with the SEC today containing
additional details about the actions described above. To access this
filing, please visit
WaMu, through its subsidiaries, is one of the nation's leading
consumer and small business banks. At Sept. 30, 2007, WaMu and its
subsidiaries had assets of $330.1 billion. The company has a history
dating back to 1889 and its subsidiary banks currently operate
approximately 2,700 consumer and small business banking stores
throughout the nation. WaMu's press releases are available at
This document contains forward-looking statements, which are not
historical facts and pertain to future operating results. These
forward-looking statements are within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements include, but are not limited to, statements about our
plans, objectives, expectations and intentions and other statements
contained in this document that are not historical facts. When used in
this presentation, the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," or words of similar
meaning, or future or conditional verbs, such as "will," "would,"
"should," "could," or "may" are generally intended to identify
forward-looking statements. These forward-looking statements are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control.
In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions
that are subject to change. Actual results may differ materially from
the results discussed in these forward-looking statements for the
reasons, among others, discussed under the heading "Factors That May
Affect Future Results" in Washington Mutual's 2006 Annual Report on
Form 10-K and "Cautionary Statements" in our Forms 10-Q for the
quarters ended March 31, 2007, June 30, 2007, and September 30, 2007,
-- Volatile interest rates and their impact on the mortgage
-- banking business;
-- Credit risk;
-- Operational risk;
-- Risks related to credit card operations;
-- Changes in the regulation of financial services companies,
housing government-sponsored enterprises and credit card
-- Competition from banking and nonbanking companies;
-- General business, economic and market conditions;
-- Reputational risk;
-- Liquidity risk; and
-- Valuation risk.
There are other factors not described in our 2006 Form 10-K and
Forms 10-Q for the quarters ended March 31, 2007, June 30, 2007, and
September 30, 2007, which are beyond the Company's ability to
anticipate or control that could cause results to differ.
The company has filed a registration statement (including a
prospectus) with the SEC for the offering of the convertible preferred
stock to which this communication relates. Before you invest, you
should read the prospectus in that registration statement, the
prospectus supplement and other documents the company has filed with
the SEC for more complete information about the company and the
offering of convertible preferred stock. You may get these documents
for free by visiting EDGAR on the SEC web site at www.sec.gov.
Alternatively, the company, any underwriter or any dealer
participating in the offering will arrange to send you the prospectus
if you request it by calling Lehman Brothers Inc. toll free at
1-888-603-5847, Morgan Stanley & Co. Incorporated toll free at
1-866-718-1649, Credit Suisse toll free at 1-800-221-1037 or Goldman,
Sachs & Co. toll free at 1-866-471-2526.
CONTACT: Washington Mutual, Inc.
Libby Hutchinson, 206-500-2770
Alan Magleby, 212-702-6955
SOURCE: Washington Mutual, Inc.