USB and WaMu struggle to pull out of mortgage crisis

In articles released on the same day, mortgage giants Washington Mutual and USB AG both reveal massive losses and plans to regain footing in the mortgage market.

Of the country's top five mortgage lenders, Washington Mutual has the most at risk, with 29% of it's 2006 mortgages in the high cost category, mostly subprime, and an additional 15% backed by homes other than the owner's primary residence. WaMu has revealed that it expects a fourth quarter loss for 2006 due to a $1.6 billion goodwill write-down on its home-loans business. Shares have fallen almost 60% in the company's stock in the past 12 months.

Speculators are wondering whether banks such as J.P. Morgan Chase & Co. will look to buy out WaMu, as they have long been seeking to expand on the west coast. Also under speculation is whether Chief Executive Officer Kerry Killinger should still be running the company.
And, finally, WaMu announced that it will cut an additional 3,000 employees as it gets out of the subprime mortgage business altogether.

USB AG has announced that it will take a $10 billion writedown and is trying to sell a chunk of itself to the government investment arm of Singapore and an unnamed Middle Eastern investor. The fact that USB has always been considered a conservative lender is sparking even further alarm on Wall Street about the real effects of the mortgage meltdown.

USB is Zurich based and was formed from the 1998 merger of SBC Corp. and the Union Bank of Switzerland. It employees nearly 83,000 employees and reported a net profit of 12.26 Swiss francs in 2006. USB has never posted a full-year loss, mainly due to the strength of its wealth-management operations. It is unknown at this time if that record will hold for USB for 2007. Chief Executive Marcel Rohner states "This is a very bleak outlook" for the U.S. housing market. He is referring to the fact that banks and other lenders are looking overseas for investment help in this mortgage crisis, which could make for national security problems in the future.

Well, despite all of the gloomy news, I believe 2008 will be good for all of us in real estate as we all become more involved and creative in ways to clean up this mess!

And, so, as always, 'til next time, it's all good!