Washington Mutual lays an egg

Jim Kim — Tue, 22 Jul 2008 17:53:52 -0400

Things were looking good for much of the commercial bank sector this week. The upside surprises from the likes of Citigroup, Bank of America and Wells Fargo were welcome news. Unfortunately, Washington Mutual just joined Wachovia in raining on the parade. WaMu, the big thrift, reported a loss of $6.58 a share. That figure excludes the effects of a one-time charge of about $3.24 a share to cover the cost of raising capital in April. Excluding that, it lost $3.34 a share versus expectations of a $1.05 loss, so this is a pretty awful quarter. The results reflect a hike in loan loss reserves of $3.75 billion. The bank did say it thinks 2008 will be the peak year for this loan loss reserve hike--which may be a bad omen for the next two quarters. The bank also announced that it intends to save $1 billion; it will start by denying CEO Kerry Killinger annual incentive payments this year. That will not likely console many. You have to wonder about his future.

For more:
- here's the release

More bank failures to come?

Jim Kim — Sat, 31 May 2008 16:57:00 -0400

It seems unlikely at this point that a major Wall Street firm will collapse. Lehman Brothers has been the target of a lot of rumors, but most think a Bear Stearns-like implosion is a remote possibility. But what about smaller banks? Loan loss reserves are rising, and the FDIC is raising the possibility of a spate of failures. Already, three have failed this year, compared with three last year and zero in 2006. The Financial Times notes that the number of designated "problem" banks rose from 76 to 90 in the first quarter. We're not looking at a savings and loan-like meltdown, but do not be surprised by some failures ahead.

For more:
- here's the Financial Times article

Loan Loss Reserves

Washington Mutual lays an egg

More bank failures to come?