Washington Mutual (WM): Another Massive Loss on Reserve Hike, But Swears Doesn't Need Capital

Washington Mutual (WM) reported a larger-than-expected loss today of $3.34 per share before a one-time “conversion feature,” well under the mean estimate of -$1.05. WM added $3.74 billion to its loan loss reserve, which ballooned to a total of $8.46 billion. WM:

The increase in provision for loan losses reflected the further decline in house prices which increased expected loss severities, increased delinquencies, reduced availability of credit, and the weakening economy. Total net charge-offs in the loan portfolio rose to $2.17 billion from $1.37 billion in the prior quarter. Nonperforming assets grew to 3.62 per cent of total assets at June 30 from 2.87 per cent at the end of the first quarter.

Key Stats:

  • Tier 1 ratio improved to 7.8%
  • $3.3 billion net loss ($6.58 per share)
  • $310 billion in total assets
  • $184 billion in average total deposits
  • Ratio of non-performing assets to total assets increased from 2.87% in Q1 to 3.62% in Q2.

WaMu said in its release that “The quarter’s financial results reflect an elevated level of provisioning due in large part to changes in the company’s provisioning assumptions in response to continued declines in housing prices nationwide.” We can only hope that those banks that did relatively better this quarter (JPM, C, WFC, BAC) didn’t do so only because they have so far refused to make the kinds of realistic assumptions about housing that WaMu apparently has made.

The most alarming figure here is the ballooning in NPA’s. The key piece of information from the release follows: “Nonperforming assets grew to 3.62 per cent of total assets at June 30 from 2.87 per cent at the end of the first quarter. At the same time, early stage delinquencies for the subprime and home equity portfolios showed early signs of stabilisation in the quarter.” This would seem to indicate that a relatively substantial amount of the increase in NPA’s had to come from non-home equity and subprime portfolios. This doesn’t auger well for the broader credit enviornment going forward. In the conference call at 5:00 Eastern, analysts will likely try to zero-in on where this increase is coming from.

Release

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