WaMu's Big Credit Cushion Brings Huge Loss

Updated from 5:48 p.m. EDT

Washington Mutual(WM) on late Tuesday posted a wider-than-expected quarterly loss due to a significant boost to its loan-loss provision, as the bank said it expects as much as $19 billion in mortgage-related losses.

The Seattle-based bank recorded a loss of $3.3 billion, or $6.58 a share. Excluding a previously disclosed EPS reduction of $3.24 a share related to the company's June conversion of preferred stock, WaMu's second quarter earnings loss was $3.34 a share. Analysts had estimated that the thrift would post a loss of $1.05 a share.

The company said it took a $5.9 billion provision in the quarter, up from $3.5 billion in the first quarter, to offset the rise in bad loans as home prices significantly fell as well as changes in the company's provisioning assumptions.

Still, shares briefly rallied in after-hours trading, after the bank said it wouldn't need to raise additional capital. They turned negative, however, after Moody's Investors Service placed WaMu and its bank subsidiary on review for a downgrade to junk status following the larger than expected loss. The ratings service said it will assess "the affect of Wamu's recent and expected operating performance on its financial flexibility."

Recently, shares were down 2.4% to $5.68.

"In the face of unprecedented housing and mortgage market conditions, we are continuing to execute on a comprehensive plan designed to ensure that we have strong capital and liquidity, an appropriately sized expense base and a strong, profitable retail franchise," CEO Kerry Killinger said in a statement. "Our recent $7.2 billion capital raise, combined with the other proactive steps we have taken this quarter to strengthen our banking franchise and further expense reductions, continue to move us toward achieving these goals."

Killinger, CFO Tom Casey and COO Stephen Rotella will not be receiving a bonus under the 2008 Leadership Bonus Plan, the bank said.