WaMu stock down 22 percent over accounting rules

NEW YORK (Reuters) - Washington Mutual Inc WM.N shares slumped 22 percent on Wednesday on fears that new accounting rules may dissuade potential buyers for the distressed savings and loan.

"There are rumors of potential suitors walking away," said Tim Backshall, chief analyst at Credit Derivatives Research in Walnut Creek, California, referring to new Financial Accounting Standards Board rules on acquisition targets being valued at market prices. The rules are weighing on many of these potential buyers, he added.

The stock dropped 73 cents to $2.57 on the New York Stock Exchange.

Also Wednesday, the cost of protecting Washington Mutual debt with credit default swaps surged to a record high Wednesday as investors bet more heavily that the lender would default on the debt.

The credit default swaps surged to 43 percent of the amount insured in upfront costs, up from 32 percent on Tuesday, plus 500 basis points in annual premiums, according to data from Phoenix Partners Group.

Swaps at those levels indicate the market saw about an 85 percent chance that Washington Mutual defaulting within the next five years, according to Tim Backshall, chief analyst at Credit Derivatives Research in Walnut Creek, California.

On Tuesday, Standard and Poor's Rating Services revised its outlook on Washington Mutual to negative from stable. On Monday, the giant savings and loan, hurt by mortgage losses, named veteran banker Alan Fishman as chief executive, replacing Kerry Killinger.

(Reporting by Phil Wahba; additional reporting by Karen Brettell; editing by Jeffrey Benkoe)