Speculation That Unsecured Creditors Were "Pulling Funds'' From WaMu

WaMu tumbled for a second day in New York trading after Gimme Credit LLC said unsecured creditors were ``pulling funds''.

Mixed reports are coming in from all directions on Washington Mutual.

Gimme Credit analyst Kathleen Shanley cited a decline in federal funds purchased and commercial paper to $75 million from $2 billion at year-end, which Washington Mutual reported this week in its second-quarter results. Securities sold under agreements to repurchase dropped to $214 million from $4.1 billion at the end of 2007, she wrote.

"We won't use the phrase `run on the bank,' but we would be remiss if we did not observe that many creditors have quietly been pulling funds," wrote Shanley. Their actions are ``presenting an increasing funding challenge," she wrote. Gimme Credit is an independent research firm serving corporate bond investors.

WaMu responded by email to Bloomberg, "As we stated publicly months ago, WaMu funds all of its business through its banking operations and does not rely on commercial paper." Note this email response doesn't exactly answer the question of the size of any withdrawals. Should this be filed n the non-denial, denial box?

Chief Executive Officer Kerry Killinger has said the $7 billion cash infusion led by TPG Inc., coupled with plans to save $1 billion annually by trimming the mortgage business, gives WaMu enough money to ride out the U.S. housing crsis.

Meanwhile, credit-default swap rates are soaring on WaMu debt. Credit-default swap sellers demanded 14 percentage points upfront and 5 percentage points a year to protect WaMu bonds from default for five years, up from 7.3 percentage points a year yesterday, according to CMA Datavision.

Analysts at Piper Jaffray, Merrill Lynch and Friedman Billings Ramsey Group Inc. said after WaMu's earnings report that it may need to raise more cash. According to a clause in the TPG agreement, if WaMu raises more than $500 million in equity at less than $8.75 a share within 18 months, it must compensate TPG for the difference.

Standard & Poor's said WaMu has the liquidity to meet obligations without raising more funds through 2012. Analysts at Lehman Brothers Holdings Inc. and UBS AG also said the company should have enough capital.