June 19, 2008 / 7:52 PM / 11 years ago

UPDATE 1-Washington Mutual cuts 1,200 jobs after big losses

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By Jonathan Stempel

BANGALORE, June 19 (Reuters) - Washington Mutual Inc (WM.N) said on Thursday it eliminated 1,200 jobs, following mortgage losses that some analysts have said will keep the largest U.S. savings and loan from turning a profit before 2010.

The cuts affect roughly 3 percent of the thrift’s employee base. Washington Mutual has said it ended March with 45,883 employees, down from 49,403 at year-end.

In an e-mail, Washington Mutual said it was cutting jobs that support its home lending unit, centralizing some support functions, and focusing on “mission-critical activities.” It said the cuts were meant to boost efficiency and restore profitability.

At the end of 2005, well before the housing crisis began to take hold, the thrift had employed more than 60,000 people.

Washington Mutual lost about $3 billion in the six months ended March 31, after failing to cut back risky lending fast enough, and keeping on its books too many loans that went sour or which investors stopped buying.

Mounting losses caused the thrift this year to slash its dividend and raise $7 billion of capital that diluted existing shareholders. The thrift this month stripped Chief Executive Kerry Killinger of his role as chairman, after a majority of shareholders voted to name an independent director as chairman.

Washington Mutual has said it may still need to charge off $12 billion to $19 billion of its $187 billion one-family residential home loan portfolio within four years.

UBS analyst Eric Wasserstrom in a June 9 report said the thrift’s home loan losses may total $21.7 billion through 2011, and that losses from all asset classes could reach $27 billion.

Washington Mutual announced the latest job cuts a day after it said it would stop offering two types of riskier mortgages.

One, so-called “option” adjustable-rate mortgages, let borrowers pay less than the principal due, with those amounts to be paid later. The other, WaMu Mortgage Plus loans, carried built-in credit lines and offered flexible payments.

Many lenders with specialties in option ARMs, including Countrywide Financial Corp CFC.N and Wachovia Corp WB.N, have struggled with soaring defaults as falling housing prices left many borrowers owing more than their homes were worth.

Seattle-based Washington Mutual on Wednesday also added $1 billion to an assistance program it created last year to help some borrowers with subprime mortgages stay in their homes.

Shares of Washington Mutual were unchanged at $6.26 in afternoon trading on the New York Stock Exchange. They have fallen more than 85 percent from their 52-week high of $44.04, set last June 28. (Editing by Braden Reddall)

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