WaMu falls on losses, downgrades, dividend worry

NEW YORK, Oct 18 (Reuters) - Washington Mutual Inc (WM.N) shares fell as much as 9.3 percent on Thursday after the largest U.S. savings and loan nearly doubled its estimate for 2007 loan losses, leading analysts to downgrade the stock and warn of a dividend cut.

The Seattle-based thrift on Wednesday said third-quarter profit fell 72 percent to $210 million, or 23 cents per share, hurt by a $348 million loss in its mortgage unit. It expects to set aside $2.7 billion to $2.9 billion for bad loans for 2007, up from the $1.5 billion to $1.7 billion it forecast in July.

Friedman, Billings, Ramsey & Co. analyst Paul Miller downgraded Washington Mutual to "underperform" from "market perform," and Punk, Ziegel & Co.'s Richard Bove cut it to "sell" from "buy."

Both said the 56 cents per share quarterly dividend may be cut. That level equates to a 6.8 percent dividend yield, based on Wednesday's closing price, higher than the yield on all other U.S. financial services companies with market capitalizations above $25 billion, Reuters data show.

"Credit trends are eroding much faster in this weakening housing market than we previously anticipated and will put significant pressure on all mortgage lenders," Miller wrote. The higher loss estimate "will result in Washington Mutual not earning its dividend for the second quarter in a row (and) result in the market beginning to factor in a dividend cut in the next few quarters."

Bove added: "There is no visibility as to when this company's loan loss issues will dissipate."

Washington Mutual did not on Thursday immediately return a call seeking comment.

Responding to a question on a Wednesday conference call, Chief Executive Kerry Killinger said it was inappropriate to speculate on the dividend.

He said directors will "take a very careful look at the environment, take a look at our earnings. We certainly take a look at the forecast that we provide. We also look at the capital, the liquidity of the company."

In afternoon trading, Washington Mutual shares fell $2.55, or 7.7 percent, to $30.52 on the New York Stock Exchange, after earlier falling to $30.00. They began the year at $45.40.

(Reporting by Jonathan Stempel; additional reporting by Dan Burns)

((Editing by Gary Hill; Reuters Messaging: jon.stempel.reuters.com@reuters.net, 646 223 6317)) Keywords: WASHINGTONMUTUAL SHARES/

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