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WaMu Sees $ 4.5 Billion Loan-Loss Provision in Quarter (Update3)WaMu Sees $4.5 Billion Loan-Loss Provision in Quarter (Update3)By Ari Levy Sept. 11 (Bloomberg) -- Washington Mutual Inc., the savings and loan that lost a third of its value this week, said that it is "well capitalized" and forecast a third-quarter loan-loss provision of $4.5 billion. Net charge-offs may increase by less than 20 percent in the third quarter, compared with 60 percent in the previous period, the Seattle-based lender said today in a statement. WaMu said it has $50 billion in liquidity. The company "continues to be confident that it has sufficient liquidity and capital to support its operations while it returns to profitability," according to the statement. WaMu, which named Alan Fishman as chief executive officer three days ago, has tumbled this week on concern an agreement with regulators may limit lending and a new accounting rule will hinder attempts to find a buyer. Soured subprime and option adjustable-rate mortgages have contributed to $6.3 billion in losses in the last three quarters, and WaMu expects that to reach about $19 billion in the next 2 1/2 years. WaMu shares rose 21 cents to $3.04 in extended trading after the announcement. The stock has dropped 34 percent this week and 79 percent in 2008, the biggest decline in the 24-company KBW Bank Index. The loan-loss provision is down from $5.9 billion in the second quarter and mostly stems from residential mortgages. The total loan-loss reserve is expected to rise to $10.3 billion at the end of the quarter from $8.5 billion in the previous period. WaMu's Plan On Sept. 8, WaMu said it signed a memorandum of understanding with its chief regulator, the Office of Thrift Supervision, that requires the bank to improve risk management and compliance. The lender promised to give the agency a "multi- year business plan" and forecast on earnings, asset quality, capital and business unit performance. WaMu said the plan doesn't call for more capital or increased liquidity. Separately, Fitch Ratings downgraded Washington Mutual's long-term rating to BBB- from BBB with a negative outlook. Moody's Investors Service cut its long-term deposit and issuer ratings to Baa3 from Baa2 because of WaMu's "reduced financial flexibility, deteriorating asset quality and expected franchise erosion." Moody's reduced its senior unsecured rating on WaMu to below investment grade, cutting it to Ba2 from Baa3. WaMu responded saying the rating is "inconsistent" with the company's financial condition. The bank said the impact on borrowings, collateral and margin requirements won't be material. There are no plans to suspend dividends on preferred stock as a result of the downgrade, WaMu said. Need for Capital Egan-Jones Ratings Co. director Sean Egan, and Hill-Townsend Capital LLC CEO Gary Townsend said WaMu must raise more cash even after a $7 billion infusion from buyout firm TPG Inc. in April. "You need a major investor to show support," said Egan, who's based in Haverford, Pennsylvania and rates WaMu's debt junk. "Unfortunately, as time passes the size of that support increases." Non-interest income is expected to be about $1 billion, an increase from the second quarter, because of growth in depositor and retail banking fees. SOURCE :: By Ari Levy
To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net. Last Updated: September 11, 2008 20:25 EDT 
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