WaMu Takes Servicing Hit in Volatile Second Quarter.

Washington Mutual's profit fell to half its prior year level in the second quarter, with mortgage banking profits eaten up by a high cost structure and hedging losses that exceeded gains on servicing rights, the company said.

Overall, Washington Mutual earned $489 million in the quarter, or $0.55 per share, compared to $995 million, or $1.07 per share in the second quarter of last year.

In a conference call with investors, WaMu chairman and CEO Kerry Killinger said the company is being hindered by an "unacceptably high cost structure" in the mortgage banking unit and higher hedging costs associated with mortgage servicing.

He said WaMu's top priority for the rest of this year and next year will be to reduce the mortgage unit's fixed costs.

The company also announced an additional management change in the mortgage arena, naming Craig Chapman as head of mortgage banking. His previous duties as chief administrative officer for WaMu will be reassigned to other executives.

Mr. Killinger said that Washington Mutual also is seeking a chief financial officer to focus on the mortgage unit while praising the efforts of the current management of the mortgage unit, which was formed after a shakeup last fall (see related story, p.5).

"We will not rest until we know that we have the strongest team in the business," he said.