Washington Mutual reports 2Q loss of $3.3 billion

Washington Mutual Inc. said Tuesday it lost a staggering $3 billion during the second quarter as it increased its loss reserves to more than $8 billion to cover souring loans in its mortgage portfolio.

For the April to June period, the bank reported a loss of $3.33 billion, or $6.58 per share, compared with a profit of $830 million, or 92 cents per share, in the year-ago period.

Results include a previously disclosed, one-time reduction of $3.24 per share related to the company's $7.2 billion capital raise in April. Excluding the reduction, the loss per share was $3.34.

Analysts polled by Thomson Financial, on average, expected a loss of $1.05 per share. Analyst estimates typically exclude one-time, unusual charges.

WaMu's loan loss reserves increased by $3.74 billion to $8.46 billion. The company set aside a total of $5.9 billion during the quarter to cover bad loans, compared with $372 million in the same quarter of last year. The increase reflects falling home prices, increased delinquencies, reduced availability of credit and the weakening economy, the bank said.

Total net charge offs, or loans written off as unpaid, increased to $2.17 billion, while nonperforming assets grew to 3.62 percent of total assets as of June 30, from 2.87 percent at the end of the first quarter.

WaMu said it shortened the time used to evaluate default frequencies in its prime mortgage portfolio to a one-year period from a three-year period. Early-stage delinquencies for the subprime and home equity portfolios showed signs of stabilization, the bank said.

Net interest income, or income generated from loans and deposits, rose 13 percent to $2.3 billion from $2.03 billion. Noninterest income, or income generated from fees and other charges, dropped 68 percent to $561 million from $1.76 billion in the same quarter last year.

The company's tangible equity to total tangible assets capital ratio increased to 7.79 percent during the quarter, up from 6.40 percent in the first quarter. Additionally, WaMu said it ended the quarter with more than $40 billion of readily available liquidity.

WaMu became one of the first retail banks to seek outside cash in the wake of the credit crisis when it agreed to sell equity securities to an investment fund managed by TPG Capital and to other investors this spring, raising $7.2 billion in fresh capital.

WaMu shares surged in afternoon trading ahead of the earnings report, rising 34 cents, or 6.2 percent, to close at $5.82. Shares continued to rise in aftermarket trading, gaining 41 cents, or 7 percent, to $6.23. Shares are down about 57 percent for the year.