WaMu May Need to Hit the ATM Again

Investors seemed to shrug off the loss, as WaMu shares rallied 9.8% early Wednesday. The stock turned negative, however, after Standard & Poor's lowered its counterparty credit rating on the company to BBB-/A-3 from BBB/A-2. Recently, shares were down 7.9% to $5.36.

Here's a quick look at earnings, provisions for loan losses and ratios for the past year:

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The company explained the $5.9 billion provision for loan loss reserves as a reaction to "changes in the company's provisioning assumptions in response to continued declines in housing prices nationwide." Clearly, even WaMu was surprised by the continuing deterioration of the housing market.

The company stated it expected loan loss provisions to peak during 2008, and pointed out that the provisions have kept ahead of the pace of loan charge-offs over the past three quarters. During the bank's conference call, CEO Kerry Killinger also emphasized efforts to cut expenses, with steps to reduce annual expenses by $1 billion.

Improved Capital Ratios

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Despite the large net loss and continuing increase in nonperforming loans and charge-offs, Washington Mutual's capital position and reserve coverage were much stronger as of June 30 than they were last quarter.

The bank was highlighted in Ladenburg Thalmann analyst Richard Bove's July 14 industry comment, titled "Who is Next?," exploring other banks in trouble following the failure of IndyMac Bancorp. According to this report, the company's ratio of nonperforming assets (including loans past due 90 days or more, nonaccrual loans and repossessed real estate) to loan loss reserves and common equity was 40.6% as of March 31, putting them eleventh on the list of 107 U.S. bank and thrift holding companies with at least $5 billion in total assets.