UPDATE 2-Fitch cuts WaMu rating, says may cut other banks

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NEW YORK, March 7 (Reuters) - Fitch Ratings on Friday cut its ratings on Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz), and said it may cut Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz), due to their exposure to residential home loans.

Fitch cut WaMu's ratings two notches to "BBB," the second lowest investment grade, from "A-minus." Bank of America and Citigroup's "AA" ratings, the third highest investment grade, were placed on review for downgrade.

The rating actions are based on an expectation that weakness in home equity portfolios will emerge in the first quarter of 2008.

"Indications from rated banks in the past few weeks suggest that home equity delinquency rates are rising at a far more rapid pace than even most bankers' and analysts' grim outlook for 2008 had anticipated," Fitch said in a statement.

"Fitch anticipates that banks will significantly ratchet up loan loss provisions against home equity loans in the first quarter of 2008 and provisioning levels for 2008 will likely be much higher than 2008 overall, as deterioration in other consumer portfolios is also likely," the credit ratings agency added.

The ratings cut on WaMu reflects the banks higher concentration in home equity and residential mortgage loans, Fitch said.

Fitch also cut its ratings on First Horizon National Corp (FHN.N: Quote, Profile, Research, Stock Buzz) one notch to "BBB-plus," the third lowest investment grade, from "A-minus" and cut National City Corp (NCC.N: Quote, Profile, Research, Stock Buzz) one notch to "A," the sixth highest investment grade, from "A-plus."

The outlook for both is negative, indicating an additional downgrade is more likely over the next one to two years.