DBRS Confirms Washington Mutual, Inc. at “A” and R-1 (low)

Dominion Bond Rating Service (DBRS) has today confirmed the ratings and Stable trends for Washington Mutual, Inc. (WaMu or the Company) and its subsidiaries. This action follows WaMu’s earnings release of January 17, 2007, reporting continued solid performance in its Retail Banking, Card Services and Commercial groups. Strong deposit, customer, and credit card growth and favorable credit quality in these segments resulted in healthy overall performance in these segments. Collectively, the segments listed above recorded net income of $3.3 billion for the year, a 28% increase over 2005, reflecting the positive momentum in WaMu’s Retail Banking and Card Services businesses.

WaMu’s Home Loans business, however, continued to experience the stress of the weakened business cycle for mortgage lenders. The slowing housing markets and deterioration in the subprime market conditions reduced fourth quarter earnings by $160 million ($110 million reduction in gain on sale of loans and a $50 million reduction in residuals). Residential loan volume was down 22% for the quarter, (year on year) reflecting the industry-wide slowdown and the Company’s decision to exit the correspondent lending business. Reflecting continued efficiency initiatives, non-interest expense and staffing declined by 12% and 27% year on year. For the quarter, the home loan segment recorded a loss of $122 million and a loss of $48 million for the full year ending December 31, 2006.

Notably, credit performance weakened in the Company’s single family loan portfolios, contributed to the rise in non-performing assets, which increased to 80 basis points from 57 basis points, at year-end 2005. DBRS considered the weakened performance in the Home Loans segment in WaMu’s ratings, which were assigned on December 22, 2006, and this performance is largely consistent with expectations given the current stage of the cycle for participants in the residential mortgage lending industry. DBRS believes the residential mortgage industry will begin to normalize in 2007, which, combined with the benefits of WaMu’s ongoing reorganization of its residential mortgage operation, should improve segment earnings in 2007.

WaMu’s fourth quarter earnings of $1.06 billion included a $415 million after-tax gain from the sale of WM Advisors Inc. For the year ending December 31, 2006, WaMu reported net income of $3.56 billion. Earnings were $865 million and $3.43 billion for the fourth quarter and full-year 2005, respectively.

DBRS, today released the full rating report for WaMu and expects to update the financial data in the near term to reflect WaMu’s fourth quarter adoption of new management accounting methodologies, including its change in funds transfer pricing methodology and its new provisioning methodology.

Note:
All figures are in U.S. dollars unless otherwise noted.