WaMu stock drops to lowest level in 5 years

Washington Mutual Inc.'s stock fell to its lowest level in five years Thursday after investment analysts picked apart the company's third-quarter earnings report and found little to suggest that the company's performance will improve soon.

The stock slumped $2.55 a share to close at $30.52 Thursday. That was even lower than WaMu's performance in after-hours trading Wednesday following the release of earnings that were down 72 percent from the same quarter a year ago.

The last time WaMu's stock price was this low was in October 2002, when it fell to $28.41 before rebounding to a peak of $46.55 in late 2003. As recently as early this year, WaMu stock was above $45 a share.

But that was before the nationwide slump in housing prices and problems in the subprime market began biting into the performance of mortgage lenders, including WaMu.

WaMu had warned that its third-quarter earnings would be down as much as 75 percent; the actual results were slightly better, down 72 percent.

But analysts, a number of whom reduced their ratings on the stock, were unhappy about what seemed to be deterioration in a number of items on the financial statements, as well as management's remarks that things have gone from bad to worse in the housing markets faster than anticipated.

James Bradshaw, a banking analyst with D.A. Davidson & Co., cut his estimate on 2007 earnings from $2.63 to $2.35 a share, and for 2008 from $3.75 to $2.60, primarily because of rising credit costs such as provisions for loan losses. WaMu earned $3.60 a share in 2006.

A report from investment research firm CreditSights noted that the loan-loss provision could be even larger in the fourth quarter.

"The cash dividend offers some support to the share price, and the yield is above 6 percent," Bradshaw noted in his report.

Management said supporting the dividend is a priority.

But analysts question how secure the dividend is. WaMu held its quarterly common-stock dividend at 56 cents a share, breaking a string of 48 consecutive quarters of increases. Quarterly earnings, however, came in at 23 cents a share. "We estimate the (fourth quarter) will be another weak one and probably fall short of its dividend once again," the CreditSights report said.

"The company does not seem to be in a strong position to support the dividend, fund asset growth and buyback stock," Bradshaw wrote.