Updated from 5:48 p.m. EDT
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.
Credit deterioration in WaMu's residential mortgage portfolio has been significant as housing prices sharply fall, forcing the nation's largest thrift to raise $7 billion in capital from a group of institutional investors led by
as well as a restructuring of the company away from mortgage broker-originated home loans.
Other banks, including
have also been hit hard by the latest credit cycle.
WaMu said that it shortened the time period used to evaluate defaults for its prime mortgage portfolio to one year from three years "to reflect the evolving risk profile of the loan portfolio and adjusted its severity assumptions for all single family mortgages to reflect the continuing decline in home prices." Its loan-loss reserve now totals $8.46 billion.
Still WaMu now expects cumulative mortgage-related losses "to be at the upper end of the range" it disclosed in April of $12 billion to $19 billion and that 2008 should be the "peak year" for provisioning. Firm-wide net charge-offs totaled $2.2 billion in the second quarter. Nonperforming assets totaled 3.62% of total assets compared with 2.87% at the end of the first quarter, it said.
WaMu said that at the end of the second quarter it had a tangible equity to total tangible assets ratio of 7.79% compared with 6.40% at the end of March. It also decreased total assets by $10 billion to $309.7 billion, which freed up roughly $550 million in capital. Additionally, the company had over $40 billion of readily available liquidity at quarter-end.
But perhaps one ray of light in WaMu's earnings was the company's statement that "early stage delinquencies for the subprime and home equity portfolios showed early signs of stabilization in the quarter."
WaMu closed Tuesday up 6.2% to $5.82, after the financial sector rallied on positive sentiment by Wachovia. The bank said it wouldn't need to raise additional capital, despite posting an $8.9 billion loss for the second quarter.