WaMu earnings miss the mark
Bank's results miss forecasts, while execs bet that troubles will continue for already battered housing market.
NEW YORK (CNNMoney.com) -- Washington Mutual reported a steeper-than-expected decline in earnings Wednesday and that it was bracing for more difficulties ahead in the housing market.
The Seattle-based bank said its third-quarter net income fell 72 percent to $210 million, or 23 cents a share, from $748 million, or 77 cents a share, a year earlier.
Revenue during the quarter ended Sept. 30 fell nearly 12 percent to $3.39 billion from $3.52 billion a year ago.
Results of the Seattle-based bank missed forecasts of analysts polled by Thomson Financial who had anticipated the company would report net income of 27 cents a share on revenue on $3.53 billion.
WaMu Chairman and CEO Kerry Killinger said he was "disappointed" with company's performance during the quarter, blaming it on this summer's liquidity crisis in the mortgage market and worsening conditions in the housing sector.
Investors, however, were already preparing for such a decline. Nearly two weeks ago, Washington Mutual warned that its quarterly earnings would tumble by as much as 75 percent because of difficulties in the mortgage market.
Unlike some of the big Wall Street banks such as Citigroup (Charts, Fortune 500), which got burned by converting troubled home loans made into securities, Washington Mutual saw many of these same loans made to borrowers with poor credit explode in their hands.
WaMu said it beefed up its reserves for loans that might go bad to $967 million during the quarter and predicted that number would grow to as much as $2.9 billion for the full year as the glut of homes on the market grows, housing prices continue to decline and as mortgage delinquencies and foreclosures keep rising.
"We are definitely experiencing an accelerating downturn at this time," said Killinger. "It is not possible to predict the timing, but I expect us to work our way through this downturn and for market conditions to improve."
Losses in the company's closely-watched home loan unit, which handled those subprime loans made to borrowers with poor credit, widened to $348 million from $23 million in the third quarter last year.
The company has since cut back on the number of subprime loans it originates. During the third quarter, it originated 95 percent fewer subprime loans than a year ago, and 80 percent fewer compared to the last quarter.
WaMu execs, however, were pleased with the results in its other divisions, even though they were hurt by the loan loss provisions. Its retail banking division saw its net income decline 18 percent during the quarter to $453 million, but the company added 310,000 net new checking accounts during the quarter.
Its credit card business reported lower profits and rising delinquencies, although it opened 945,000 new credit card accounts during the quarter.