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Perhaps the most important part of Washington Mutual’s (WM) warning yesterday was the line:

While difficult to predict, the company also currently expects quarterly loan loss provisions through the end of 2008 to remain elevated, generally consistent with its expectation for the first quarter of 2008.

Losses and write-offs are going up, and not by a small amount. Yet when I suggested as much several weeks ago, in an effort by one good source to extrapolate the Wells Fargo (WFC) charge to WaMu, you would have thought I had just walked out of a creative writing — not financial reporting — class.

For a refresher, here’s what I wrote:

From one of my really bright sources — the same one who first brought my attention to the ETrade'’s real estate debacle: “Wells Fargo just took a $1.4 billion charge on $11.9 billion of home equity exposure. That’s a 12% cumulative loss rate! If you used that as a read across for Washington Mutual’'s $59 billion home equity book it would imply a charge of $7 billion!! Total reserves are $1.9 billion. Oh my...

While it may appear that this is an apples to oranges comparison, Wells is considered a much higher quality home-equity lender. These numbers used by the analyst assume that much of Wamu'’s home equity portfolio could be comparable to the $11.9 billion that Wells Fargo identified as its “highest risk” loans.

Now hear this: If you read the press release closely, the company said quarterly loan losses next year will be “consistent with the first quarter of 2008.” For the first quarter, the company said the provision will be in the range of $1.8 to $2 billion. That totals $7.2 billion to $8 billion, or pretty much what my source above was predicting. And that’s assuming that the company has it all figured out. (See my story from yesterday for more details.)

It was just four weeks ago, after all, that UBS (UBS) was saying it would have no mortgage-related writeoffs. Now WaMu, in effect, is saying all bets are off.

Source: All Bets Off On WaMu