WaMu outlook weak but soothes some investors

NEW YORK Fri Sep 12, 2008 7:15pm EDT

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

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

Credit: Reuters/Joshua Lott

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NEW YORK (Reuters) - Washington Mutual's plans for another big write-down, along with its declaration that it has enough capital to survive, soothed some investors and analysts who feared the housing crisis might cripple the lender.

The largest U.S. savings and loan institution said late on Thursday it expected to set aside $4.5 billion for credit losses this quarter, down from the second quarter's $5.9 billion, and write off $2.7 billion for bad loans.

WaMu (WM.N) made its unusual disclosure six weeks before it planned to report earnings to calm investor fears following a 34 percent in its shares in the four days since it named Alan Fishman as its new chief executive.

The outlook suggested that Fishman will report the thrift's fourth straight quarterly loss.

Analysts on average expect a loss of $1.22 per share, or roughly $1.24 billion, according to Reuters Estimates.

Washington Mutual has said home loan losses could reach $19 billion through 2011, and many analysts believe the thrift might eventually be forced to find a buyer or raise more capital. WaMu raised $7 billion this year from investors led by private equity firm TPG Inc TPG.UL.

At least four analysts cut their share price targets for Washington Mutual.

But Howard Shapiro of Fox-Pitt Kelton Cochran Caronia Waller said the thrift's disclosures on credit, deposits, liquidity and fee income "should calm some of the hysteria surrounding the stock and the company's future."

And Goldman Sachs & Co's Brian Foran, who also cut his price target, upgraded the thrift to "neutral" from "sell," saying the projections "provide a glimmer of a silver lining that the worst may be seen. The main risk remains that deposits begin to be withdrawn quickly."

Meanwhile, there were conflicting reports on Friday as to whether Washington Mutual had revived talks to be acquired by JPMorgan Chase & Co (JPM.N), the third-largest U.S. bank.

The American Banker trade paper first reported that JPMorgan was in advanced talks to acquire WaMu. An industry source later told Reuters: "They are in advanced talks."

But business channel CNBC reported that no talks were being held, while two other sources familiar with the situation later told Reuters that talks were not ongoing.

Shares of Washington Mutual closed down 10 cents at $2.73 on the New York Stock Exchange, after trading in a range of $2.43 to $3.29. The shares fell 36 percent this week, and have slid 92 percent in the last year. On Thursday, they dropped below $2 for the first time since 1990.

"RELIABLE" FUNDING

In its outlook, WaMu said retail deposits as of August 31 were "essentially unchanged" from $143.6 billion at the start of the year.

This, however, suggested a decline from $148.3 billion as of June 30, though the thrift is offering yields as high as 5 percent on one-year certificates of deposit.

Washington Mutual also said it had $50 billion of liquidity from "reliable funding sources."

This language was reminiscent of language that Countrywide Financial Corp, then the largest U.S. mortgage lender, used in August 2007 when it said it could access $46.2 billion of "highly reliable" short-term financing.

Less than two weeks later, it drew down an $11.5 billion credit line. Countrywide was bought in July by Bank of America Corp (BAC.N).

In its downgrade, Moody's said Washington Mutual was suffering from "reduced financial flexibility, deteriorating asset quality, and expected franchise erosion."

Fitch Ratings also downgraded the thrift.

"The company is suffering form a lack of confidence in the debt markets," said Craig Emrick, a Moody's senior credit officer, on a conference call.

He nevertheless added: "I see no reason why this entity can't operate over the medium term with its current rating."

Fishman succeeded Kerry Killinger, who was ousted last weekend after 18 years at the bank's helm.

(Additional reporting by Megan Davies, John Poirier and Al Yoon; editing by Gerald E. McCormick and Ted Kerr)

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