Thursday, September 11, 2008

WaMu: $4.5 Billion in Loan Loss Provisions, Fitch Downgrades

by Calculated Risk on 9/11/2008 07:08:00 PM

Press release: WaMu Provides Update on Expectations for Third Quarter Performance

WaMu expects the third quarter provision to be approximately $4.5 billion, down from $5.9 billion in the second quarter, but nearly two times expected charge-offs, resulting in an expected increase of approximately $1.8 billion in the allowance for loan losses at quarter end. Residential mortgage provisions are expected to be approximately $3.4 billion, down approximately $2.1 billion from second quarter residential mortgage provision of approximately $5.5 billion. Offsetting this decrease is an expected $600 million increase in the card provision, the majority of which is the result of credit card securitizations maturing in the ordinary course and returning to the balance sheet. The company expects its total loan loss reserve to increase from $8.5 billion at June 30th to approximately $10.3 billion at the end of the third quarter.
From Fitch: Fitch Downgrades Washington Mutual to 'BBB-'; Outlook Negative
Fitch Ratings has downgraded the long- and short-term Issuer Default Ratings (IDRs) of Washington Mutual, Inc. ... The Rating Outlook is Negative.

Today's actions reflect Fitch's expectation for continuing asset quality challenges amidst market conditions that are considered the most difficult in several decades for U.S. retail banks, particularly those with a concentration in residential mortgage assets.

WaMu has posted significant quarterly losses for the past three quarters, primarily as a result of a sharp rise in credit loss provisioning during the past year. ... WaMu announced today that it expects the provision for third-quarter 2008 (3Q08) to start showing evidence of that anticipated trend with a substantially lower provision (estimated at approximately $4.5 billion) in 3Q'08 versus the 2Q'08 provision of $5.9 billion.

... Fitch believes that the flexibility to add to capital is now significantly constrained in light of market conditions.
Update: from reader Nemo: How big is WaMu?