NEW YORK (Reuters) - Washington Mutual Inc, the largest U.S. savings and loan, posted a $3.33 billion second-quarter loss on Tuesday as souring mortgages forced it to set aside more money for loan losses.

A woman walks into a Washington Mutual bank in New York April 7, 2008. REUTERS/Joshua Lott

The thrift’s deteriorating health prompted Moody’s Investors Service to say it may downgrade Washington Mutual to “junk” status. Shares of Washington Mutual fell in after-hours electronic trading.

Washington Mutual said its third straight quarterly loss was $3.34 per share, more than triple the $1.09 per share loss that analysts on average expected according to Reuters Estimates. Year-ago profit was $830 million, or 92 cents per share.

The net loss was $6.58 per share including a one-time adjustment tied to the thrift’s $7.2 billion capital raising in April from private equity firm TPG Inc and other investors.

Seattle-based Washington Mutual said its retail banking, mortgage and credit card units all lost money in the quarter. The thrift set aside $5.91 billion for loan losses, and said net charge-offs totaled $2.17 billion.

It has been one of the hardest hit among the largest U.S. lenders in the nation’s housing and credit crisis.

“We are planning for continued softness in housing for the next several quarters,” Chief Executive Kerry Killinger said in an interview. “The capital that we have in place is sufficient to manage through this period. We have no plans at this point to raise additional capital.”

Washington Mutual said it expects residential mortgage loan losses through 2011 to be “toward the upper end” of the $12 billion to $19 billion range it had forecast in April. Some analysts had predicted the losses might end up higher.

The thrift expects its reserving for credit losses to peak this year, but cut its 2008 forecasts for growth in deposits and fee income, and boosting projected expenses.

Washington Mutual also said that Killinger, Chief Operating Officer Steve Rotella and Chief Financial Officer Tom Casey will not receive annual incentive payments under a company bonus plan, in light of its performance in 2008.

The thrift has cut 6,205 jobs this year, or 13 percent, leaving it with 43,198 employees. Analysts expect more cuts as Killinger tries to reduce expenses by $1 billion.

Killinger faces pressure to stanch losses and restore profit following an 86 percent plunge in Washington Mutual’s stock price in the last year.

Washington Mutual shares fell 21 cents to $5.61 in after-hours electronic trading. They closed regular trading up 34 cents at $5.82 on the New York Stock Exchange.

REDUCED FLEXIBILITY

Moody’s said the falling stock price and declines in some deposit categories have resulted in “reduced financial flexibility,” making it tougher to raise additional equity.

The credit rating agency also projected “sizable” quarterly losses through 2009 for Washington Mutual.

Meanwhile, WaMu’s board, long considered loyal to Killinger, last month stripped him of his chairman’s post after shareholders voted at its annual meeting for a replacement.

Killinger has been chief executive since 1990, and became chairman the following year.

In the interview, Killinger said the thrift has a “very strong and very engaged board,” including the “welcome additions” of TPG founding partner David Bonderman and Continental Airlines Inc Chief Executive Larry Kellner, as a board observer.

“The board is absolutely committed to returning the company to profitability in as short a time as possible,” he said.

He declined to discuss speculation the thrift could be a takeover target. “The board has approved this comprehensive plan and instructed management to execute it,” he said.

In a July 22 letter to Chairman Stephen Frank, the employee pension plan of the American Federation of State, County and Municipal Employees demanded the removal of Killinger as chief executive and the resignation of two directors, citing the company’s financial performance and falling stock price.

A Washington Mutual spokesman declined immediate comment, saying he hadn’t reviewed the letter.

Washington Mutual said its mortgage unit lost $1.35 billion in the second quarter, while retail banking posted a $2.04 billion loss. Credit cards generated a $175 million loss, while profit in commercial banking fell 29 percent to $87 million.

The thrift Mutual said it ended the quarter with $309.7 billion of assets, and operates about 2,239 branches.