Washington Mutual curbs subprime loans, profit up

"Washington Mutual Inc, one of the largest U.S. mortgage lenders, on Wednesday said it will stop offering some popular home loans for subprime borrowers, after rising defaults caused losses to mount."

More details on the losses of the home loans unit and other credit losses:

The home loans unit posted a $37 million loss, down from a loss of $113 million in the first quarter. A year earlier, the unit posted a $50 million profit. Overall loan volume fell 24 percent from a year earlier to $31.5 billion. Killinger expects the unit to be profitable by year end.

Operating profit in retail banking, WaMu's largest unit, fell 5 percent to $558 million. A decline in credit quality and less lending income more than offset the benefit of 406,000 net new checking accounts. Net interest margin rose to 2.90 percent from 2.65 percent.

Though WaMu opened a record 928,000 credit card accounts, rising loan losses caused card profit to fall 22 percent to $141 million. Commercial banking profit rose 35 percent to $113 million.

WaMu set aside $372 million for credit losses, up 66 percent. Net charge-offs more than doubled to $271 million. Killinger citing housing market deterioration and a growing card business for the increases. "We're very pleased with the growth in card receivables," he said.

WaMu now plans to set aside $1.5 billion to $1.7 billion this year for credit losses, up from its prior $1.3 billion to $1.5 billion forecast.

Interesting how the increase in net interest margin (due to the righting of the yield curve) wasn't nearly enough to offset the impact of deteriorating credit. Watch this trend.

Also beware of the doublespeak: being "pleased" with an increase in credit business even as profit from the business is falling is nonsensical.