March 15, 2008 in Business

Moody’s downgrades WaMu rating

Jessica Mintz Associated Press
 

SEATTLE – Moody’s Investors Service cut Washington Mutual Inc.’s credit rating Friday and said the country’s largest savings and loan will need at least $4 billion more than it expected to cover bad mortgages in 2008.

Investors sent shares down $1.54, or 12.7 percent, to close at $10.59 Friday.

Moody’s said its action reflects a “rapid deterioration” of the housing market in the first few months of the year, echoing the rationale behind another rate cut by Standard & Poor’s a week ago.

WaMu has estimated it will sock away up to $8 billion this year to account for borrowers who can’t afford mortgage payments. Moody’s upped its own estimate for loan loss provisioning to more than $12 billion Friday.

Resulting fiscal-year losses could eliminate the cash cushion that keeps WaMu in compliance with regulations, Moody’s said in a news release.

The credit rating agency downgraded Washington Mutual Inc.’s senior unsecured rating to “Baa3” from “Baa2.” It also cut Washington Mutual Bank’s long-term deposit rating to “Baa2” from “Baa1.” The new ratings are still considered investment grade but reflect moderate credit risk.

Moody’s also placed a negative outlook on all Washington Mutual entities.

“Although in the fourth quarter the company raised a significant amount of hybrid capital and reduced its dividend, we believe WaMu’s necessary provisioning could reduce capital to a point that would lead to further downgrades in 2008,” said Craig Emrick, Moody’s vice president.

“There are actions management can take in 2008 to address this, including raising additional capital, reducing assets and further cutting the dividend,” he said. “However, the negative outlook reflects the uncertainty around the company’s ability to replenish capital.”

Another downgrade would put the ratings for the thrift into speculative grade, or “junk,” territory.

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