Washington Mutual (WM)

Washington Mutual (WaMu) has been sued many times in the past few years over allegations of impropriety. Some examples include: a) pressurizing home appraisers to approve inflated estimates of loans;^[1] b) racial discriminatory practices in lending;^[2] c) improper allocation of late fees;^[3] and d) receiving payments, failing to credit them and then charging late fees.^[4] More recently, WaMu was sued by its employees for 401k mismanagement^[5] and for lying to investors about the company's exposure to the subprime market.^[6]

1. ↑ "WaMu says Cooperating with SEC on Home Appraisals", 21 December 2007, Reuters
2. ↑ "NAACP holds National 'Day of Action' against mortgage discrimination", 14 July 2008, The Louisiana Weekly
3. ↑ "Washington Mutual sued over mortgage payments", 30 January 2002, Seattlepi.com
4. ↑ "Dembowski v. Washington Mutual", Green Welling LLP
5. ↑ "Washington Mutual Faces Class Action Citing ERISA Violations" Hagens Berman LLP
6. ↑ "Wolf Popper Announces Filing of Securities Class Action Lawsuit Against Washington Mutual, Inc.", PR Newswire

Washington Mutual (WaMu) announced a $3.3 billion net loss in the second quarter of 2008, driven primarily by a $6.0 billion provision for loan losses. The company is projected to have losses of $3.60 per share this year and $1.50 per share next year.

WaMu also has high exposure to subprime loans, option ARMs, brokered loans and the California market i.e. all products and geographic locations that have been hit hard in the downturn. Of its $250 billion loan portfolio, $11.2 billion of that portfolio is non-performing, up from $4.0 billion a year ago. As such, WaMu is worse off as compared to Wachovia where only 2.4% of the portfolio was non-performing.

In addition, revenues from WaMu's credit card division are down by 9%.

Washington Mutual’s low-cost checking and savings deposits have incurred a loss of 4.8%; trouble in growth of retail deposits will have a constricting effect on the net interest margin.

Washington Mutual’s large portfolio position in sub-prime mortgages and option-ARMs has become exposed due to increased bank regulation in non-traditional mortgage regulation, which will impact earnings of the Home Loans segment.

Even though Washington Mutual is expanding its footprint, it is having trouble breaking through into low concentration areas such as Chicago and Atlanta.