Financial life in a big town

Washington Mutual reported a $3.3 billion quarterly loss Tuesday — far worse than Wall Street was anticipating — as it set aside more money for bad loans.

The Seattle-based thrift reported a net loss of $6.58 a share, which included a charge related to a $7 billion capital raise the company announced in April.

Excluding the charge, WaMu reported a loss of $3.34 a share. Analysts polled by Thomson Reuters were expecting the nation’s largest savings and loan to report a loss of $1.05 a share on this basis.

Just a year ago, the company reported a profit of $830 million, or 92 cents a share.

Washington Mutual (WM, Fortune 500) shares initially climbed in after-hours trading, before turning lower after the credit rating agency Moody’s put WaMu under review for possible downgrade. WaMu shares finished Tuesday’s regular session more than 6% higher.

When quizzed about the report from Moody’s by an analyst, WaMu management said it didn’t see much impact from the announcement, saying there wasn’t any need to raise debt at this time.

Driving this quarter’s loss was a sharp increase in WaMu’s loan loss reserves, which grew $3.74 billion during the quarter to $8.46 billion.

WaMu warned that the company would need to continue to reserve against loan losses over the next couple years, but said that 2008 would represent the peak of loan loss provisioning.

"I still think there is more to come in the way of provisions because of the increasing rate of non-performing loans in the home loan, home equity, and subprime categories," said Stephanie Hall, a senior analyst with the Scottsdale, Ariz.-based research firm Gradient Analytics. "But they have taken a step in the right direction by increasing the loan loss accrual."

Yet, the company offered some signs of encouragement as delinquencies in its troubled subprime and home equity portfolios showed "early signs of stabilization" during the quarter, according to the company.

"We believe this portfolio may be starting to burn out," said John McMurray, WaMu’s chief enterprise risk officer during the conference call.

The company also announced that top management, including Killinger, the company’s chief operating officer and finance chief, would not receive bonuses this year in light of the company’s financial performance to date.

Including Tuesday’s results, WaMu has reported three consecutive quarterly losses. Scrambling for cash, the firm has cut its dividend twice, shut down some of its key business units and trimmed its payroll.

Killinger stressed that the company remained well capitalized even as the housing market and the broader economy has deteriorated further since April when it announced a plans to raise $7 billion by selling an equity stake to an investment group led by the private-equity firm TPG online payday loan.

WaMu also said its Tier 1 capital ratio, a measure of a bank’s ability to absorb losses, stood at 8.44% at the end of the quarter. A ratio above 8% is generally considered a good sign for financial institutions.

"We remain confident that we have sufficient capital to successfully manage our way through this challenging period," Killinger said.

Concerns about WaMu’s fate surfaced last week after Lehman Brothers analyst Bruce Harting wrote in a research note he suggested the company would report $26 billion in cumulative losses when the company delivered its quarterly results, and would have to "substantially" raise its loan loss reserves as a result.

Those concerns were compounded by comments from Ladenburg Thalmann analyst Richard Bove, who warned that WaMu is on the edge of the "danger zone."

That spooked WaMu investors, who were already fearing further bank failures following the high-profile collapse of the California-based mortgage lender IndyMac just days earlier.

WaMu issued a statement later that day stressing it was well capitalized with more than $40 billion in excess liquidity.

Shares of WaMu have nearly doubled in the past week after hitting a new 52-week low. But WaMu’s stock, currently hovering around $6, still trades well below its 52-week high of $41 50.

The latest figures from WaMu come just hours after the Charlotte-N.C.-based Wachovia (WB, Fortune 500) booked a nearly $9 billion loss.

WaMu’s results also come at the tail end of what has been a tumultuous round of second-quarter earnings reports for the nation’s banks.

A number of large financial institutions, most notably Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), reported quarterly figures that, while not good, still managed to beat analysts’ expectations. Bank stocks have rallied sharply in the past few days on the news.  

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Plane maker Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) has seen a string of order deferrals in the United States this year as the airline industry battles challenges such as high fuel costs, a senior executive said on Wednesday.

Randy Tinseth, Boeing Commercial Airplanes Vice President for Marketing, said the delays also featured one total cancellation, but the issue was limited to the U.S market — which accounts for 10-11 percent of its sales.

“We have seen deferrals in the U.S. market as the airlines look to make significant capacity reductions, but we are pleased to have regional diversity .. We have not seen deferrals in other regions,” he told reporters.

Boeing shares were up 0.5 percent at $66.45 at 12:08 p.m. EDT.

Airline fuel costs have soared this year alongside record oil prices above $140 a barrel, forcing several airlines to cut capacity and hike fuel charges protect margins.

But Tinseth said Boeing did not expect the tough climate to last — predicting the value of the new plane market to grow in the long term.

Bowing said the group now valued the market for new commercial planes at $3.2 trillion to 2027 cash advance. That is up from a $2.8 trillion 20-year forecast provided last year.

“The forecast takes into account the industry’s near term challenges, including a slowing worldwide economy (and) surging fuel prices .. This year’s forecast is rooted in today’s realities, but also recognizes the nature of a long term outlook,” Tinseth said. 

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Fugitive hedge-fund swindler Samuel Israel turned himself to federal authorities in Massachusetts after nearly a month on the lam, the U.S. attorney’s office said Wednesday.

Israel turned himself into Southwick, Mass., police between 9:15 and 9:30 a.m. Wednesday, said Suzanne Anderson, police Chief Mark Krynicki’s assistant. She said he was being processed at Southwick Police headquarters and referred all further questions to federal authorities.

Southwick is 95 miles away from the federal prison in Ayer, Mass., where Israel was to report last month to serve his sentence.

Israel disappeared June 9 on the day he was supposed to report to prison. His car was found on a bridge over the Hudson River with the words "Suicide is Painless" - the theme song for the "MASH" television show - scrawled in dust on the hood.

Because no body was found beneath the 150-foot-high bridge where his car was abandoned, authorities believed from the start that he faked his disappearance.

The 48-year-old Israel, a co-founder and chief executive of the now-collapsed Bayou hedge funds, was sentenced in April to 20 years in federal prison for conspiracy and fraud. He was also ordered to pay $300 million to his victims.

Prosecutors said he and two other men persuaded investors to put $450 million into the Stamford, Conn.-based company by announcing nonexistent profits and providing fake audits.

Meanwhile, they made millions in commissions on trades that lost money for investors quick payday loans. The fund’s collapse prompted calls for stricter oversight.

Officials said that after Israel abandoned his car, he took off in a white recreational vehicle carrying a motor scooter and his belongings. He was believed to be staying at RV parks, campgrounds or highway rest areas.

Southwick, where Israel turned himself in, is near the Connecticut line about 100 miles southwest of Boston.

Israel’s girlfriend, Debra Ryan of Armonk, was arrested 10 days after his disappearance and charged with aiding and abetting his escape.

Authorities say Ryan confessed that on the day Israel was to surrender, she drove her car and he drove the RV to a rest area about 55 miles north of New York City. Israel parked the RV there, and the two drove back to their home.

Ryan could face as many as 10 years in prison if convicted in the scheme. 

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Just six weeks ago the U.S. Federal Reserve was in interest rate-cutting mode. Now, Fed officials have hauled out rhetoric that suggests rates could rise within a few months.

The U.S. central bank’s sudden shift to more aggressive anti-inflation language reflects both an easing of worries on financial market conditions and concerns over signs that inflation expectations are escalating.

Fed Chairman Ben Bernanke staked out the new position last week with an eye-catching defense of the downtrodden U.S. dollar.

This week, Bernanke, Vice Chairman Donald Kohn and St. Louis Federal Reserve Bank President James Bullard were among officials who said they were watching for any sign a self-feeding inflationary psychology could take hold.

“The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations,” Bernanke said. “The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.”

While some Fed officials have been sounding the alarm about higher inflation for months, the harsher tone from Bernanke and Kohn marks an important shift away from an emphasis on the risk that financial turmoil, tighter credit and a deep housing contraction could tip the economy into a deep recession.

On April 30, the central bank lowered benchmark borrowing costs by a quarter-percentage point to 2 percent, the seventh reduction in a series dating to mid-September that has taken rates down by a cumulative 3.25 points.

Not all those reductions, however, were unanimous advance america cash advance. Dallas Federal Reserve President Richard Fisher dissented at each of the Fed’s last three meetings, and he was joined in opposition at the last two by Philadelphia Fed chief Charles Plosser. 

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Hewlett-Packard, the world’s biggest computer maker, launched a new generation of touchscreen PCs designed to lift user-friendly computing out of its expensive niche and bring it to a wider market.

The TouchSmart All-in-One allows users to work with photos, music, video, the Internet and television by tapping or swiping the screen, and will be priced at $1,299, HP said at the launch in Berlin on Tuesday.

HP’s Personal Systems group of PCs, notebooks, workstations and handheld devices has transformed itself over the past few years from a largely commoditized volume business to a far more successful one that emphasizes product design.

The group’s executive vice president, Todd Bradley, told Reuters he aimed to set a trend and create a new market.

“We don’t think about this as a niche no fax payday loans. We think about it as a global product that will inspire demand and drive desirability,” Bradley said in a telephone interview.

“Our ability to lead is very important,” he added, declining to speculate on what size the market for such PCs might reach.

HP’s announcement came a day after Apple announced a new version of its ground-breaking iPhone, the original version of which brought touchscreens to public attention and sparked a host of imitators.

Bradley denied that HP was following Apple, pointing out that HP had been developing touch technology for some time. But analyst Crawford del Prete of research firm IDC said: “I don’t think Apple’s impact can be underestimated.” 

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Drug developer Biovail Corp. is undergoing a major shift in focus and will concentrate on developing products to treat central nervous system disorders, a strategy the company hopes will restore its flagging growth.

The Toronto-based company said Thursday its new direction, following a strategic review, aims to capitalize on a US$70-billion global market for treatments targeting diseases such as Parkinson's disease and multiple sclerosis.

"We will leverage Biovail's existing core capabilities in drug delivery and formulation for the therapeutic area of central nervous system disorders – a large market where unmet medical needs and growth potential are high," chief executive officer Bill Wells said in a statement.

Biovail reported Thursday a first-quarter profit of US$56.4 million, 35 cents per share, down from year-ago earnings of $93.8 million, 58 cents per share, as revenues dropped to $208.5 million from a prior-year $247 million a year before free credit report instantly.

The company said it plans to close its two Puerto Rico factories over the next 18 to 24 months, moving some of their production to a Steinbach, Man., facility.

It will also invest more than $600 million in research and development through 2012, "exploring niche in-licensed and acquired late-stage new chemical entities, new indications and in-house reformulation opportunities."

The new strategic plan is expected to result in charges of about $80 million to $100 million in the next few quarters, with potential annual savings of between $30 million and $40 million.

Some of Biovail's non-core assets will be sold, generating possibly more than $100 million in proceeds.

Shares in Biovail were down 16 cents at $11.84 in early trading at the Toronto Stock Exchange.

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