Washington Mutual loses $3.3 billion
Hurt by higher loan loss provisions, nation's largest thrift reports worse-than-expected results.
NEW YORK (CNNMoney.com) -- Washington Mutual reported a $3.3 billion quarterly loss Tuesday -- far worse than Wall Street was anticipating -- as it set aside more money for bad loans.
The Seattle-based thrift reported a net loss of $6.58 a share, which included a charge related to a $7 billion capital raise the company announced in April.
Excluding the charge, WaMu reported a loss of $3.34 a share. Analysts polled by Thomson Reuters were expecting the nation's largest savings and loan to report a loss of $1.05 a share on this basis.
Just a year ago, the company reported a profit of $830 million, or 92 cents a share.
Washington Mutual (WM, Fortune 500) shares initially climbed in after-hours trading, before turning lower after the credit rating agency Moody's put WaMu under review for possible downgrade. WaMu shares finished Tuesday's regular session more than 6% higher.
When quizzed about the report from Moody's by an analyst, WaMu management said it didn't see much impact from the announcement, saying there wasn't any need to raise debt at this time.
Driving this quarter's loss was a sharp increase in WaMu's loan loss reserves, which grew $3.74 billion during the quarter to $8.46 billion.
WaMu warned that the company would need to continue to reserve against loan losses over the next couple years, but said that 2008 would represent the peak of loan loss provisioning.
"I still think there is more to come in the way of provisions because of the increasing rate of non-performing loans in the home loan, home equity, and subprime categories," said Stephanie Hall, a senior analyst with the Scottsdale, Ariz.-based research firm Gradient Analytics. "But they have taken a step in the right direction by increasing the loan loss accrual."
Yet, the company offered some signs of encouragement as delinquencies in its troubled subprime and home equity portfolios showed "early signs of stabilization" during the quarter, according to the company.
"We believe this portfolio may be starting to burn out," said John McMurray, WaMu's chief enterprise risk officer during the conference call.
The company also announced that top management, including Killinger, the company's chief operating officer and finance chief, would not receive bonuses this year in light of the company's financial performance to date.
Including Tuesday's results, WaMu has reported three consecutive quarterly losses. Scrambling for cash, the firm has cut its dividend twice, shut down some of its key business units and trimmed its payroll.
Killinger stressed that the company remained well capitalized even as the housing market and the broader economy has deteriorated further since April when it announced a plans to raise $7 billion by selling an equity stake to an investment group led by the private-equity firm TPG.
WaMu also said its Tier 1 capital ratio, a measure of a bank's ability to absorb losses, stood at 8.44% at the end of the quarter. A ratio above 8% is generally considered a good sign for financial institutions.
"We remain confident that we have sufficient capital to successfully manage our way through this challenging period," Killinger said.
Concerns about WaMu's fate surfaced last week after Lehman Brothers analyst Bruce Harting wrote in a research note he suggested the company would report $26 billion in cumulative losses when the company delivered its quarterly results, and would have to "substantially" raise its loan loss reserves as a result.
Those concerns were compounded by comments from Ladenburg Thalmann analyst Richard Bove, who warned that WaMu is on the edge of the "danger zone."
That spooked WaMu investors, who were already fearing further bank failures following the high-profile collapse of the California-based mortgage lender IndyMac just days earlier.
WaMu issued a statement later that day stressing it was well capitalized with more than $40 billion in excess liquidity.
Shares of WaMu have nearly doubled in the past week after hitting a new 52-week low. But WaMu's stock, currently hovering around $6, still trades well below its 52-week high of $41 50.
WaMu's results also come at the tail end of what has been a tumultuous round of second-quarter earnings reports for the nation's banks.
A number of large financial institutions, most notably Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), reported quarterly figures that, while not good, still managed to beat analysts' expectations. Bank stocks have rallied sharply in the past few days on the news.