Washington Mutual Earnings Slaughterhouse (WM)

Washington Mutual Inc. (NYSE:WM) posted earnings after today’s close, and as you’d expect there was a severe drop compared to 2006.  The lender posted earnings per share of $0.23, down from a whopping $0.77 EPS in the third quarter of 2006 and under the $0.27 EPS estimate.

The ‘red side of the books’ continues to weaken.  One key metric to review is non-performing assets, which again rose to 1.65%.  The non-performing assets were 1.29% in Q2 2007 and were 0.69% in Q3 2006.  The company also increased the provision for loan losses for credit cards to $323 million from $229 million in the second quarter reflecting a higher level of delinquencies and a lower level of anticipated recoveries.  The quarter’s provision increased to $967 million from $372 million in the prior quarter in response to higher delinquencies and impacts from recent house price trends; the increase in the non-card portion of the provision to $644 million from $143 million in the second quarter.

You know it isn’t going to be a good day there when the comments start out like this:  "We’re disappointed with our third quarter results but they reflect the increasingly difficult market conditions that are challenging the banking industry," said WaMu Chairman and Chief Executive Officer Kerry Killinger. "Despite these challenges, our Retail Banking, Card Services and Commercial businesses delivered good operating performance during the quarter, and we continued to adapt our Home Loans business to meet market conditions."

The company also announced its Board of Directors declared a quarterly cash dividend on the company’s common stock of $0.56 per share.  Yet income is $0.23 EPS and internals are still weaking.  When companies pay out a higher dividend than income, investors have to wonder when a dividend cut may be forced upon the company. Maybe the company is throwing out all the bad news it can, but there is just very little to get excited about here.

Shares closed down 0.4% at $33.07 today, and shares are down about 1% at $32.75 in after-hours trading.  Its 52-week trading range is $31.27 to $46.38. 

• Citi was right in guidance… earnings were bad.
• Wells Fargo’s modest quarter;
• When will the vulture fund come public?
• Lending games continue at Countrywide.
• BankUnited is feeling real pain.

Jon C. Ogg
October 17, 2007