WaMu Earns $1B in 3Q Despite Hedging Snafu

Washington Mutual, Seattle, earned $1.03 billion in the third quarter, despite losing $126 million during the period in connection with mortgage loan sales.But WaMu, which had warned the market in early September about its loan loss problem, did well in the quarter in part because it offset losses by reducing its servicing amortization rate -- at least that's the opinion of stock analysts who cover the mortgage banker. Smith Barney analyst Matt Vetto wrote in a research note that WaMu "used its toolkit to offset a loss from a widely-advertised hedging glitch." Mr. Vetto added that WaMu suffered a sequential decline in its servicing portfolio and is losing market share. In the second quarter WaMu reported a $475 million gain in regard to mortgage sales. Morgan Stanley analyst Ken Posner noted in his analysis that WaMu "missed consensus estimates [on earnings] by a sizeable amount." He added that "operational issues" at the mega-thrift, the nation's largest servicer of home mortgages, are "detracting significantly from current economic results." However, he said the risks facing WaMu "are not catastrophic in our view."