WaMu selling mortgage-servicing and investment units

July 19 — Washington Mutual Inc., the biggest U.S. savings and loan, agreed to sell a mortgage-related unit to Wells Fargo & Co. to focus on faster-growing businesses such as credit cards. Costs to write down the value of the unit led to a drop in second-quarter profit.

Washington Mutual also said it plans to sell WM Advisors, a money-management unit with about $17.8 billion in assets, by year-end.

Net income dropped 9 percent to $767 million, or 79 cents share, from $844 million, or 95 cents, a year earlier, the Seattle-based company said today in a statement. Selling the mortgage-servicing unit to Wells Fargo cut earnings by $101 million. Revenue rose 17 percent to $3.64 billion.

Washington Mutual sought to reduce its dependence on single- family mortgages for earnings with $6.5 billion of bank and credit card acquisitions in the past year. Demand for new home loans slowed as the Federal Reserve increased short-term interest rates 17 times in the past two years, forcing mortgage lenders to seek growth elsewhere.

"They've been looking to get those low-returning businesses off their balance sheet," Fox-Pitt Kelton analyst Edwin Groshans said in an interview. "They're feeling the pressure from margin compression. The Fed keeps raising rates."

Job cuts and other efforts to slash expenses pared an additional $52 million of earnings. Washington Mutual said profit would have been 94 cents a share excluding the one-time expenses. The company was expected to earn $923 million, or 93 cents a share, the average estimate of 18 analysts surveyed by Thomson Financial.

Wells Fargo said today it agreed to buy from Washington Mutual rights to service $140 billion of mortgages. The San Francisco-based, the No. 5 U.S. lender by assets, will absorb about 800 Washington Mutual employees and a servicing office in Milwaukee as part of the transaction. Washington Mutual expects the sale to result in $50 million more in costs, most of which will be recorded this quarter.

Mortgage-servicing companies mail statements to borrowers and collect interest and principal payments in exchange for a fee.

Groshans, in a note to clients earlier today, said he expects the WM Advisors business to fetch $275 million to $300 million.

Shares of Washington Mutual rose 60 cents to $46.42 today in composite trading on the New York Stock Exchange. The stock is the eighth-best performer in the benchmark Philadelphia KBW Bank Index in the past year, climbing 13 percent.

The company said last week it planned to eliminate 900 jobs in its retail and mortgage units. The reductions, coupled with the company's February plan to cut 2,500 positions, will trim more than 5 percent of the company's workforce.

Washington Mutual bought San Francisco's Providian Financial Corp. for $5.5 billion in October to enter the credit card industry and earlier this year agreed to acquire Irvine, California-based real estate lender Commercial Capital Bancorp for $977 million.