WaMu's 3Q profit shrinks 72 percent

Washington Mutual Inc.'s third-quarter profit shrank 72 percent as sagging home prices made it harder for borrowers to pay their bills and hurt the value of the bank's portfolio of mortgage loans.

The third-biggest home lender on Wednesday reported quarterly profit of $210 million, or 23 cents per share, compared with profit of $748 million, or 77 cents per share, a year earlier.

Analysts polled by Thomson Financial forecast a profit of 27 cents per share.

Chief Executive Kerry Killinger said "increasingly difficult market conditions" are hamstringing the banking industry.

Total quarterly revenue, a combination of net interest income and noninterest income, fell to $3.39 billion from $3.52 billion last year. Analysts expected revenue of $3.53 billion.

The bank recently warned that the weak housing market could drag down its profits by about 75 percent.

Washington Mutual shares dropped 13 cents, or about 0.4 percent, to $33.07 before the earnings were reported on Wednesday. The stock was losing another $1.22 in after-hours trading.

Washington Mutual last year socked away $967 million to prepare for borrowers defaulting on their debt, mostly mortgages and credit card loans. The reserve is six times bigger than the provision in the third quarter of last year.

The Seattle-based bank also had a write-down of $147 million after transferring $17 billion in home and other real estate loans from its sales to investment portfolios.

For the quarter, Washington Mutual's home loan group lost $348 million, compared with a $23 million loss a year earlier. Home mortgage sales swung from a second-quarter gain of $192 million to a third-quarter loss of $222 million.

"I have never seen housing credit conditions change so significantly over such a short period of time, nor can I remember a period when there was less clarity about near-term housing and credit trends," Chief Financial Officer Tom Casey told financial analysts.

Washington Mutual also reported an impairment loss of $104 million on investment-grade mortgage-backed securities available for sale.

Subprime mortgage production dropped 95 percent for the past year, from $9.4 billion to $483 million.

Washington Mutual's profit margin from lending shrank slightly versus the second quarter as the bank needed to borrow money from other banks, which is more expensive than raising cash through deposits.

Net interest income, or profit from lending, rose 3.4 percent to $2.01 billion. Noninterest income, or earnings from charges and fees, slipped 12 percent to $1.38 billion.

Killinger said he was disappointed with the overall results, but said the company's retail banking, card services and commercial businesses performed well.

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