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Originally published September 25, 2008 at 12:00 AM | Page modified September 25, 2008 at 2:34 PM

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WaMu slides deeper into credit junk pile

Standard & Poor's Ratings Services downgraded Washington Mutual Inc.'s creditworthiness further into junk territory Wednesday, noting the increased likelihood that any sale of the company would only be done in piecemeal fashion.

The Associated Press

NEW YORK — Standard & Poor's Ratings Services downgraded Washington Mutual's creditworthiness further into junk territory Wednesday, noting the increased likelihood that any sale of the company would only be done in piecemeal fashion.

Meanwhile, media reports Wednesday night said regulators are moving quickly to broker a deal.

The fate of the ailing Seattle-based thrift has hung in the balance for weeks, as investors question the potential for a sale or government intervention in the face of WaMu's plunging stock price — down 83 percent so far this year. The stock dropped 94 cents, or 29.4 percent, to $2.26 Wednesday.

"The longer this takes, the more trouble this company seems to be getting in," said Chris Armbruster, an analyst at Al Frank Asset Management in Laguna Beach, Calif., whose $650 million under management includes WaMu shares.

"It's very likely the financial condition of this company is deteriorating while they wait," he said.

The Financial Times reported Wednesday night that bids were due today but there was little enthusiasm from buyers. It said WaMu board member David Bonderman was trying to prevent the Federal Deposit Insurance Corp. from taking action. Bonderman is co-founder of TPG, which led a $7 billion infusion in WaMu earlier this year.

Meanwhile, The Wall Street Journal reported WaMu has approached several private equity firms, including Carlyle Group and Blackstone Group, to gauge their interest in a potential takeover.

S&P noted there are few potential buyers without capital constraints and mortgage-debt issues, narrowing the possibility for an outright takeover of the entire thrift.

But a carve-up of WaMu would increase the risk of default for creditors of the holding company, because the bank's stable deposit base would be gone.

S&P reduced WaMu's rating to CCC from BB-, eight levels below investment grade.

WaMu assured customers Wednesday that Standard & Poor's rating actions do not affect the safety of deposits, which are insured by the FDIC up to certain limits.

WaMu has insisted its capital levels remain above regulatory standards for being considered "well capitalized," but debt-ratings agency Moody's this week cut the financial-strength rating of WaMu's main bank subsidiary to "E," its lowest, saying the thrift's capital isn't enough to absorb its mortgage losses.

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Last week, a sale of the nation's largest savings and loan seemed imminent, as Goldman Sachs Group was brought in to assist with a transaction and a major investor removed a potential roadblock to a sale.

But after the government announced Friday it was working on a plan to help troubled banks remove billions of bad mortgage debt from their books, momentum stalled as buyers awaited details.

"[The potential suitors] are all kind of playing a wait-and-see game right now," said Joe Heider, president of Cleveland-based Dawson Wealth Management, in an interview Tuesday.

A possible scenario attractive to buyers would be WaMu's takeover by the FDIC, which could allow another bank to buy the deposits and branches — considered the thrift's most valuable part — while the government is stuck with selling off bad mortgage debts.

But there would have to be "a triggering event" for the FDIC to intervene, said Doug Landy, a partner at Allen & Overy.

"One, the deposits start walking out, or two, WaMu takes such big losses that its capital drops down below certain required levels," Landy said.

Information from Bloomberg News is included in this report.

Copyright © 2008 The Seattle Times Company

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