A lawsuit on behalf of all purchasers of Washington Mutual stock has been filed against the largest U.S. savings and loan.
The complaint charges WaMu with violations of the Securities and Exchange Act of 1934. Specifically, it alleges the company failed to disclose and also misrepresented certain facts the lawsuit alleges were known to defendants or disregarded by them.
The complaint alleges the company knew or disregarded the fact that its solid earnings growth was linked to the extraordinary mortgage volumes fueled by low interest rates and that the company knew or disregarded that its earnings growth could not be sustained and that the company’s business strategy was flawed, regardless of the company’s efforts to reduce operating costs and streamline and improve operations. The complaint further alleges that as a consequence of those two situations, WaMu lacked a reasonable basis for its positive statements about the company and its earnings projections.
In a June statement, WaMu warned that increases in long-term interest rates would significantly impact its mortgage banking business. The lowered forecast was the second in seven months.
It also said its mortgage business might lose money as home-loan volume and profit from selling mortgages fall below expectations.
Additionally, the company announced more layoffs are likely. WaMu already cut about 7,400 jobs in the six months ending March 31. A company spokesman has said more layoffs are anticipated during the remainder of 2004, but declined to specify how many jobs overall would be eliminated.
The Seattle-based bank said it now expects to make $3 to $3.60 a share in 2004. That compares with its previously forecast profit of $4.35 a share.
The drop has been fueled primarily by higher interest rates, the company said. Mortgage rates have climbed, demand is drying up and refinance loans have dropped significantly from their peaks last year.
The company’s earnings and layoff woes have prompted some observers to speculate that it could become a takeover target. Rumors have circulated that both Citigroup and London-based HSBC are interested in acquiring WaMu.
On Wednesday afternoon, the company 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.
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.
Kerry Killinger, chairman, president and chief executive officer, called the quarter “disappointing.”
The company’s shares (NYSE: WM) traded at $38.57 Thursday morning, down 2.3 percent from the previous day’s closing price of $39.50.
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