Washington Mutual said today that it expects third quarter profit to dive 75% as a result of charge-offs and write-downs in its home loan business.
In the third quarter of 2006, Seattle-based Washington Mutual reported net income, or profit of $748 million, or 77 cents a share.
The savings bank now expects third quarter profit closer to $187 million, or 18 cents a share.
WaMu, which will release its third quarter earnings on October 17, said the sheer drop in earnings is the result of “a weakening housing market and disruptions in the secondary market.”
The company will see net charge-offs of $550 million, loan loss provisions of roughly $975 million, impairment losses of nearly $110 million for unsold mortgage-backed securtities, net losses of about $150 million in the company’s trading securities portfolio, and also write down the value of various loans and portfolios by about $410 million.
If you’re wondering how many bad loans WaMu got stuck with, charge-offs are reserved for loans that have no chance of recovery, whereas loan loss provisions are used to cover future losses on loans that are in default or need to be renegotiated.
“While we’re disappointed with our anticipated third-quarter results, 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,” Washington Mutual Chairman and Chief Executive Officer Kerry Killinger said in a release.
Killinger seemed to be bullish on the long-term performance of the bank and mortgage lender, and said the release of this information prior to earnings was “in light of the impact of the very challenging market environment.”
Shares of Washington Mutual were up 54 cents, or 1.53% to $35.82 in midday trading on Wall Street.