WaMu Swings to $1.9B Loss

Updated from 5:23 p.m. EST

Washington Mutual(WM) posted a net loss that missed analysts' estimates as the troubled consumer-centric company safeguards its business from future loan losses and damage amid the sour mortgage environment.

The bank's net loss of $1.87 billion, or $2.19 a share, was worse than the mean expectation of analysts polled by Thomson Financial by a whopping 83 cents a share. That compares to a profit of $1.05 billion, or $1.10 a share, a year earlier. Revenue of $3.41 billion fell short of analysts' mean expectation of a loss of $1.36 a share on $3.51 billion of revenue.

WaMu attributed the quarterly loss to a $1.6 billion after-tax charge to writedown goodwill in its Home Loans unit as well as higher provisioning because of the housing market weakness.

For the full year, the company recorded a net loss of $67 million, or 12 cents a share, as a result of the charges in the fourth quarter, it said.

Last month, WaMu, with a strong hand in retail banking, was forced to slash its dividend by 73% to 15 cents a share and raised $2.9 billion through a convertible preferred stock sale to boost its capital.

The capital raising came in conjunction with WaMu's decision to restructure its home loans unit by cutting more than 3,000 jobs and exiting the subprime lending business altogether.

The bank is also ramping up reserves for loan losses to cushion against greater delinquencies on subprime mortgages and home-equity loans. It said Thursday that it set aside $1.5 billion in the fourth quarter for bad loans -- in-line with its previously announced plans for the provision and approximately twice the level of fourth-quarter net charge-offs.

WaMu said Thursday that the capital raising effort boosted its tangible capital to tangible asset ratio to 6.67%, $3.7 billion above the company's targeted ratio of 5.50%.

Chairman and CEO Kerry Killinger said on a call with analysts that "clearly the housing downturn is acute and deeper than expected." He said the bank is anticipating a provision in the range of $1.8 billion and $2 billion for the first quarter.

"We are not done," Killinger said on the call. "We are committed to making changes no matter how difficult that will speed our return to profitability."

Later in the call, Killinger said he would not accept a cash bonus for 2007 and bonuses for the bank's management team "have been greatly reduced." High-profile executives at clobbered Wall Street banks, like Morgan Stanley(MS) CEO John Mack and Bear Stearns(BSC) Chairman and ex-CEO James Cayne also said they would forego bonuses after posting poor results last month.

"We all understand that we have to do better and we will," Killinger said.

The big consumer-centric company, which expanded from an obscure Seattle-based savings and loan into a national retail banking powerhouse with a heavy emphasis in mortgage lending, recorded $528 million in writedowns on the company's trading and available-for-sale securities, it said.

Killinger reiterated that the infusion of new capital, dividend reduction and restructuring of the home loans business "further fortify WaMu's strong capital and liquidity position."

Washington Mutual's dismal results come after a troublesome day for several banks also reporting earnings. Merrill Lynch(MER) reported a net loss of $9.8 billion, or $12.01 a share, from taking $14.6 billion in writedowns. Several regional banks including PNC Financial Services(PNC), Huntington Bancshares(HBAN) and Comerica(CMA) also reported poor results, citing problems with loans made to residential developers, among other things.

The ailing numbers add fodder to some market observers to speculate that Washington Mutual could be ripe for a takeover. Media reports last week said that the bank has held preliminary discussions with JPMorgan Chase(WM).

Shares fell 7% on Thursday. The stock was rising 6.2% to $13.23 in recent after-hours trading.

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