A profit warning Tuesday from
, the nation's biggest thrift, drove another nail into the coffin of the home-lending boom, but some analysts say the Seattle lender's problems go beyond those of its peers.
WaMu slashed its earnings outlook for the fourth quarter and next year, and said 900 of its current workers would join 4,500 others who have been shown the door since August. Most startling was news that the volume of mortgages it originated fell by half from the third quarter to the fourth.
The bad news sent investors running. The stock was recently down $3.58, or 8.3%, to $40.26. After hitting a 52-week high in mid-November at $46.85, the stock has given back all the gains it posted the past two months.
And WaMu's warning also pounded shares of
, which fell $4.52, or 4%, to $103.78;
, which dropped $2.20, or 5%, to $41.83;
, which declined $2, or 4%, to $49.92; and
New Century Financial
, which lost 85 cents, or 2%, to $39.64.
More diversified banks with big mortgage banking operations also saw their shares fall, but not as severely. Shares of
at midday wereoff 76 cents, or 1.3%, to $56.45, while
Bank of America
slid 27 cents, or less than a half-percent, to $75.73.
Many investors have been waiting for a selloff in the space, given that the recent gains have come despite signs that the refinancing and mortgage market is cooling off.
As early as July, a chill began to settle on the refinancing market, after long-term interest rates and 30-year mortgage rates both suddenly rose more than a full percentage point. The Mortgage Bankers Association's index, which measures total home-lending activity, has fallenfrom a summer high of 1,635 to 685 in the most recent weekly survey.
In fact, the day before WaMu's warning, Countrywide said it financed $22 billion in home loans in November, down 24% from October and off 31% from a year earlier.
But financial analysts said investors would be wise to make distinctions between the different mortgage lenders, and said some of the problems WaMu is experiencing aren't shared by all firms. Industry experts point out that part of WaMu's problem is its rapid nationwide expansion and difficulty in merging its many operating systems.
"The problem with WaMu is it has grown to a huge size too quickly without pragmatic systems to control risks," said David Hendler, an analyst with CreditSights, a small ratings agency. "We've been cautious on them for a while."
Hendler said WaMu's problems also stem from its failure to hedge itself properly for the upswing in interest rates. By contrast, he said, California-based Countrywide has done a better job hedging its exposure to interest rate fluctuations.
Hendler said Countrywide is more adept at managing interest rate risk because it uses a more modern and sophisticated approach for valuing the derivatives and other hedging techniques it uses.
A recent CreditSights research report puts Bank of America in the same camp as Countrywide but finds potential problems with the hedging strategies employed by WaMu, Wells Fargo,
J.P. Morgan Chase
. According to the report: "Some mortgage players are not using the best hedging tools due to short-term earnings concerns."
In fact, some of CreditSights' concerns about WaMu were borne out in the third quarter, when the bank blamed the sudden spike in interest rates and hedging problems for a net loss of $126 million from mortgage loans. The bank said it responded by setting up an internal "SWAT team" to make surethe problem didn't recur.
And in the weeks since, investors seemed to have bought the notion that nothing was wrong. Instead, they focused on the fact that the thrift reported an overall 5% gain in third-quarter profits.
WaMu is now telling investors to set their sights lower. For this year, the bank estimates total earnings of $4.15 to $4.25 a share. That's up from 2002's earnings of $4.02 a share, but well off the Thomson First Call consensus estimate of $4.42.
Next year, it sees earnings of $4.30 to $4.80 a share, compared with its original estimate of $4.70 to $4.80.
In contrast to WaMu's downbeat news, National City and Doral issued statements Tuesday in which they said the mortgage banking business was doing quite well. In a regulatory filing, National City said it expects a fourth-quarter "rebound" in mortgage banking revenue.