Washington Mutual expects big drop in profit

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NEW YORK, Oct 6 (Reuters): Washington Mutual Inc, one of the largest US mortgage lenders, said Friday it expects a 75-per cent drop in quarterly income on losses and write-downs on mortgage loans and securities.
Loan loss provisions for the third quarter will be about $975 million, the largest US savings and loan said in a statement. It expects total losses and write-downs of about $410 million.
Only days ago, Citigroup Inc, the largest US bank by market value, said it was expecting a 60 per cent fall in third-quarter earnings on $5.9 billion in losses and write-downs from subprime and leveraged loans, fixed income trading, and weakness in its consumer business.
Merrill Lynch, the largest US brokerage, said Friday it would post a third-quarter loss after writing down $4.5 billion in collateralised debt obligations and subprime mortgage holdings.
"We're disappointed with our anticipated third-quarter results," WaMu Chief Executive Kerry Killinger said in a statement. But he added the company expects an improved fourth quarter on good performance in its retail banking, card services and commercial group businesses.
Killinger said the bank, which announced 1,000 layoffs last month, has the liquidity and capital necessary to develop its businesses and support its current dividend.
Washington Mutual earned $812 million before exceptional items in the previous year's quarter. A 75 per cent drop in the latest quarter's profit would see that figure plunge to $203 million, or less than half the $425 million forecast by analysts.
Analysts said they were not surprised by WaMu's news.
Punk Ziegel & Co analyst Richard Bove said he assumed the thrift would take a $700 million loan provision each in the third and fourth quarters, a little lower than WaMu's $975 million.