Washington Mutual

Part of a series The Great American Write-Down

Washington Mutual (WM.N) will increase their loan loss provisions by at least $2.7 billion this year. The companies stock has also taken an additional hit from an investigation by NY AG Cuomo into the practice of pressuring their mortgage insurers to inflate the value of the properties being mortgaged. As a result of this practice, families were over mortgaging their homes causing a severe financial burden. As these loans were packaged and sold, there actual underlying value was also inflated; causing a misrepresentation and losses to the investment banks that bought them.



Note: Company just stated that further provisions, estimated at $1 billion or more, are going to be required to cover additional loan losses.



Articles:
WaMu Sinks as Losses Mount
Washington Mutual shares sink on Cuomo probe, losses
WaMu sued over home appraisals - law firm
WaMu’s “Amazing Accomplishment”

SunTrust – Could Offshoring Be Part Of Their “Organizational Design Component”

Today SunTrust Banks Inc. put a Press Release out that stated 2,400 back office and managerial positions will disappear in the near future. Could this just be a required step preceding the implementation of contracting for offshore services. SunTrust is reported as the 7th largest bank in the U.S. and all of the six larger banks have taken the offshore route. Citigroup, WaMu, B of A, JP Morgan Chase, Wachovia and Wells Fargo have active offshore programs and over the last two years have had significant lay offs.

The Mortgage Meltdown Part 1

The mortgage companies have shown extreme vulnerability to this recent drying up of the availability of instant funding for brokered home mortgages. As I count, 30,000 to 40,000 people have seen their livelihood also dry up. Part 2 will cover the future of the mortgage industry and who the winners will be.

Part One

The widespread closures and layoffs in the mortgage industry is more than just a slow down or a shakeout, it directly points to a flawed business plan. The same question keeps popping up; should a company based on a business model that can not withstand a short term drying up of “borrowed” money survive.

Of course the last ten years have brought home ownership to more Americans than ever before; many of us have been able to buy the American dream using non-conventional loan programs. But the problems in the industry didn’t start with the average home owner, the problem was started by speculation, the belief that you can build and they will come, the belief that what you charge will become the new base line for pricing and the belief that all property will automatically grow in value.

This was the part of the industry that was begging for a shakeout. But as the shakeout continues, some other areas of the mortgage industry that are normally unseen have shown extreme weakness to any tightening of the credit flow.

The party is over. As the promised above average returns dry-up for investors, and the values of the underlying assets diminish, the pools of investor money that was used to fund these mortgages are disappearing and the investors are taking what is left and heading for greener pastures. This part is bad and is causing enormous problems for many, but the overall effect is that all debt instruments are being revalued and the less than squeaky clean are now experiencing massive withdrawals.

This is far from over and what effects it will have on the average Joe and Jane are yet to be seen, but our for those that are suddenly put out of a job, the meltdown has literally hit home.

WaMu’s “Amazing Accomplishment”

The Puget Sound Business Journal’s staff writer Justin Matlick penned an in depth article on the recent layoffs at Washington Mutual.

From the article, President and Chief Operating Officer Stephen Rotella said that trimming $700 million off expenses in a short time span, "is an amazing accomplishment."

Rotella also said that the streamlining effort is now complete, and is already being reflected in WaMu's bottom line.

Chairman and Chief Executive Officer Kerry Killinger has since made it WaMu's goal to bring their expenses inline with other big banks, spurring a series of moves that included:

Cutting overall staff levels by upward of 10,000 workers, or 18 percent
Moving thousands of jobs to India, the Philippines and Costa Rica
Shuttering more than 80 retail branches
Closing 10 of 26 home-loan processing centers

Matlick writes:

“In addition to the Philippines location, WaMu contracts out call center work to Costa Rica -- where Spanish-speaking workers handle calls from the company's bilingual customers -- and outsources some back-office operations to India. Its goal is to eventually move the equivalent of 7,500 full-time positions offshore.”

WaMu is among a growing number of financial institutions, including JP Morgan Chase & Co., Citigroup, B of A and Countrywide Financial Corp., transferring operations offshore.

Something to think about; in an effort to alleviate the problems with sub-prime loans, WaMu is refinancing 2 billion of these loans with hopes that a little time will allow the borrowers to get their act together. Or could they just be pushing these problems out of the current financial statements.

From the WaMu.com website:

"We have a simple philosophy: Everyone should be treated with dignity and respect.This simple approach has been in practice for years at Washington Mutual. We're committed to creating a work environment where everyone has the opportunity to thrive and succeed."