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Credit Crunch Whacks WaMu

The bank warns third-quarter profit will plunge on heavy writedowns.

Washington Mutual (WM) - Get Report predicted a steeper-than-expected decline in third-quarter earnings, becoming the latest bank to assess the damage done by the collapse of the market for mortgage-backed securities and this summer's credit crunch.

The Seattle-based bank said profit for the quarter ended last month will fall 75% from a year ago, when Washington Mutual made 77 cents a share. A decline of that magnitude would put the bank's earnings at 20 cents a share -- well short of Thomson Financial analysts' mean estimate of 58 cents.

Washington Mutual said results will be weighed down by a $975 million provision to its loan loss reserves, reflecting ongoing weakness in the housing market. WaMu said its net charge-offs will be $550 million for the quarter.

Washington Mutual also took a $150 million writedown on the value of held-for-sale mortgage loans, a $150 million loss in its trading portfolio and $110 million of impairment losses on its mortgage-backed securities portfolio.

"While we're disappointed with our anticipated third-quarter results," said CEO Kerry Killinger, "we look forward to an improved fourth quarter as we continue to see good operating performance in our Retail Banking, Card Services and Commercial Group businesses."

Killinger said WaMu "continues to have the liquidity and capital necessary to grow the company's businesses and support its current dividend."

TheStreet.com Ratings reported in August that WaMu

could face serious liquidity problems amid a sharp downturn in its bread-and-butter home mortgage business.

Earlier this week,

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UBS

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Deutsche Bank

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posted steep losses tied to their holdings of mortgage-backed securities and leveraged-buyout loans.

WaMu fell 28 cents to $35 in premarket trading.