Washington Mutual today announced second-quarter 2004 earnings of $489 million, or $0.55 per diluted share, down 49 percent on a per-share basis from $995 million, or $1.07 per diluted share from continuing operations for the same period a year ago.
The reduction in second-quarter net income resulted primarily from a reduction in net home loan mortgage banking income, which declined to zero from $611 million in the second quarter of 2003 and $531 million in the first quarter of this year. The second-quarter decrease reflected the large change in the hedging performance of the company’s mortgage servicing rights since the end of the first quarter.
“Most of Washington Mutual is strong and growing profitably, but this was a disappointing quarter,” said Kerry Killinger, chairman, president and chief executive officer. “While second quarter results were affected by the volatility of our mortgage servicing rights, the root of our problem is the unacceptably high cost structure in our mortgage banking business. We know what we need to do, our efforts are well underway, and we will not be satisfied until we have fixed it.”
At the end of June, the company revised its financial outlook for the remainder of the year, stating it now expects to make between $3.00 to $3.60 per diluted share. It had previously forecast $4.35 a share. The revised forecast was the second in seven months.
The company said increases in long-term interest rates would significantly affect its mortgage banking business. It also has warned of more layoffs during the remainder of the year.
Those woes have prompted speculation that the company could be a takeover target.
Total home loan volume from the mortgage banking business was $59.5 billion, compared to $106.7 billion in the second quarter of 2003. During the first quarter of 2004, it was $47.9 billion. Adjustable-rate mortgage volume was 54 percent of total mortgage banking home loan volume up from 24 percent in the second quarter of 2003.
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