UPDATE 3-Washington Mutual sinks below $2, rallies by close
(Recasts with late stock jump, adds comment, bond price, CD yields)
NEW YORK, Sept 11 (Reuters) - Washington Mutual Inc WM.N shares sank below $2 for the first time since 1990 as anxiety grew about its capital needs and survival prospects, before staging a powerful late rally.
The thrift's shares closed up 51 cents, or 22 percent, at $2.83 on the New York Stock Exchange, after earlier trading as low as $1.75. Despite the late jump, they were down 34 percent since Monday, when Washington Mutual named Alan Fishman its new chief executive.
"WaMu was another battered bank stock that many investors believed could be the next one which might not survive," said William Lefkowitz, options strategist at brokerage firm vFinance Investments. "Some investors might have felt that WaMu has been punished enough for the short term."
Washington Mutual reported a $3.33 billion second-quarter net loss, including the first loss in its credit card unit. It has said mortgage losses could reach $19 billion through 2011.
The Seattle-based thrift raised $7 billion this year from investors led by private equity firm TPG Inc [TPG.UL], but the falling stock price could make any new capital too costly.
"Unfortunately, their options have narrowed significantly, even over the past two days," Sean Egan, manager of the ratings desk at Egan-Jones Ratings Co, said in an interview.
"What is ideal is an investment well in excess of $10 billion, probably closer to $15 billion or $20 billion, with the hope of additional investments over time," he added. "Few investors can write a ticket that large, and even fewer have the ability to move quickly."
Washington Mutual spokesman Brad Russell declined to comment. TPG spokesman Owen Blicksilver also had no comment.
Other financial stocks also rallied late in the session. The 24-member KBW Bank Index .BKX rose 2.8 percent, with the entire gain coming in the last 20 minutes of trading.
Still, Washington Mutual shares are down 92 percent in the last year. Its "distressed" 5.25 percent notes maturing in 2017 fell 2 cents on the dollar to 44 cents, pushing its yield up to 18.08 percent from 15.87 percent, according to MarketAxess.
REGULATOR MONITORING SITUATION
Earlier this week, Washington Mutual said its main regulator, the Office of Thrift Supervision, has stepped up its oversight into how the thrift manages risk.
"We're fully aware of the situation, and we're monitoring it," said William Ruberry, an OTS spokesman.
Fishman is a former chief executive of Brooklyn, New York's Independence Community Bank Corp, which was bought by Sovereign Bancorp Inc SOV.N in 2006. Continued...
