WaMu plans to sell two units; charge trims quarterly profit

Washington Mutual 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, based in Seattle, is the biggest U.S. savings and loan. It said it also plans to sell WM Advisors, a money-management unit with about $17.8 billion in assets, by year-end.

The company reported Wednesday that its profit dropped 9.1 percent to $767 million, or 79 cents a share, from $844 million, or 95 cents, a year earlier. Selling the mortgage-servicing unit to Wells Fargo cut earnings by $101 million. Washington Mutual is trying 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," said Fox-Pitt Kelton analyst Edwin Groshans. "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. Chief Executive Officer Kerry Killinger said on a conference call with analysts that the company cut more than 4,000 jobs, or 7 percent of its work force, in the second quarter.

Last week, Washington Mutual said it would eliminate 900 positions in its retail and mortgage units.

Washington Mutual said its quarterly 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 Wednesday that it agreed to buy from Washington Mutual rights to service $140 billion of mortgages, or 17 percent of Washington Mutual's servicing portfolio. The San Francisco-based bank, 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.

Analyst Groshans said he expects the WM Advisors business to fetch $275 million to $300 million. The subsidiary, which provides investment management and other duties for the WM Group of Funds, produced net income before taxes of $27 million in the latest quarter, down from $35 million in the same period a year earlier.

Washington Mutual's results came out after markets closed; in after-hours trading, the stock fell 41 cents to $46.01.

Information from Seattle Times staff is included in this report.