Wednesday, 16 April 2008

Nothing but Red Ink for WaMu

As posted here last week, Washington Mutual (WM) continues to go from bad to worse. In November I raised the possibility that WM would struggle to post a profit for 2008 as loan loss priovisions would gobble up their bottom line. Late Tuesday that scenario became worse when the cmpany report a loss of $1.14 billion for 1Q08. From

WaMu reports $1.14 billion quarterly net loss Lender sets aside $3.51 bln of provisions; finance committee director resigns

Washington Mutual Inc. reported a $1.14 billion first-quarter net loss late Tuesday as the lender suffered from the mortgage meltdown and broader credit crunch....

....The Seattle-based company also said it closed a previously announced deal to raise $7 billion from a group of investors led by private-equity firm Texas Pacific Group. It also reported "steady" results from its retail banking, credit card and commercial businesses.

WaMu shares edged 28 cents higher to $10.60 in after-hours trading on Tuesday. The stock gained 3% during regular trading.

WaMu said it lost $1.14 billion, or $1.40 a share, in the period, vs. net income of $784 million, or 86 cents a share, during the first quarter of 2007.

The company (WM) set aside $3.51 billion of provisions to cover potential loan losses as the economy weakens and home values continue to slide. That's more than double the amount the lender set aside in the fourth quarter of 2007.

The chart above tells a very nasty story, even more nasty than the one told by Wachovia just a few days ago. It now looks likely that WaMu will rack up losses in the billions in 2008.

Also consider this. Mortgage rests peaked in March of this year. It typically takes 6 months from the reset date until foreclosure. Thus loan loss provisions will remain extremely elevated for the remainder of this year and well into next.

Already it is becoming obvious that 2009 will be a tough year for companies like WaMu and Wachovia and that some hope of a return to a normal operating environment will be pushed out until at least 2010 but possibly even further.