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Washington Mutual to lay off more than 3,000

Washington Mutual Inc., the nation’s largest savings and loan, said Monday that problems in the mortgage and credit markets are forcing it to close offices, lay off more than 3,000.
/ Source: The Associated Press

Washington Mutual Inc., the nation’s largest savings and loan, said Monday that problems in the mortgage and credit markets are forcing it to close offices, lay off more than 3,000 workers and set aside up to $1.6 billion for loan losses in the fourth quarter.

WaMu is also slashing its quarterly dividend 73 percent and plans a $2.5 billion offering of preferred stock that is convertible to common shares. WaMu has not yet priced the offering, but increasing the total number of company shares will dilute their value for existing stockholders. In after-hours trading, WaMu shares fell $1.76, or nearly 9 percent, to $18.12 following the company’s announcement.

The offering follows recent announcements by other big banks and mortgage-related companies to sell special stock to shore up their finances.

“These actions ... should ensure that it has the financial strength to address difficult conditions in the credit and housing markets in 2008,” the company said in a statement.

After dismantling much of its subprime mortgage operation in September, Seattle-based WaMu will now get out of the business entirely. The company said it will close about 190 of its 335 home loan centers and sales offices, shut down nine call centers and eliminate 2,600 home loan workers and 550 corporate and support jobs.

It had already cut 1,000 jobs related to the sale of home loans to people with questionable credit.

The company also said it will shutter WaMu Capital Corp. and rely on third party broker-dealers to sell mortgage-backed securities.

These changes, meant to address what WaMu called “unprecedented challenges in the mortgage and credit markets,” will save the thrift $140 million in the fourth quarter. But the company still expects to post a loss, due in part to a $1.6 billion charge for the writedown of goodwill associated with the shrinking home loans business.

On top of that, WaMu now expects to set aside between $1.5 billion and $1.6 billion for loan losses in the fourth quarter, from the $1.1 billion to $1.3 billion predicted by executives in early November.

For the first quarter of 2008, the company said it expects loan losses to total $1.8 billion to $2 billion. Loan losses will remain high throughout the year, WaMu added.

Word of WaMu’s convertible preferred stock offering came just hours after Switzerland-based UBS AG said it would sell $11.5 billion in shares to Government of Singapore Investment Corp., a sovereign-wealth fund, and to an unidentified investor in the Middle East. And last month, Citigroup Inc. took a $7.5 billion investment from the Abu Dhabi Investment Authority in exchange for up to 4.9 percent of Citigroup’s equity.

Government-sponsored mortgage finance companies Freddie Mac and Fannie Mae both recently announced plans to sell preferred stock totaling $6 billion and $7 billion, respectively.

WaMu has not yet priced its offering, and it may have to settle for less-than-favorable terms if the other recent deals are any indication. In exchange for its cash, the Abu Dhabi fund will get an 11 percent annual yield from Citigroup. The Freddie Mac offering have a fixed dividend rate of 8.375 percent, almost 2 percentage points higher than its last sale of preferred stock, in September.

WaMu also slashed its quarterly dividend to 15 cents per share from its most recent dividend of 56 cents per share, for savings of more than $1 billion.

Moody’s Investors Service downgraded several long-term and short-term ratings for WaMu and said in a statement that the move “was based on its view that credit losses from WaMu’s mortgage operations will be noticeably higher than previously estimated.” The credit rating agency said it doesn’t expect WaMu’s profitability to begin to recover until 2010.

Fitch Ratings also downgraded WaMu’s credit ratings.