WaMu Cut to "Junk," Sees $4.5 Billion Loss Reserve

Washington Mutual Inc was downgraded to below investment-grade status by Moody's Investors Service, after the S&L projected a $4.5 billion third-quarter increase in reserves for bad loans.

Moody's cut WaMu's senior unsecured debt rating two notches to "Ba2," its second-highest "junk" grade, from "Baa3," with a "negative" outlook. It also lowered its rating for the banking unit to "Baa3" from "Baa2."

WaMu said it has $50 billion of liquidity from "reliable funding sources," and expects capital to remain "significantly above" regulatory minimums for "well-capitalized" lenders.

WaMu said about $3.4 billion of the reserve increase is expected to come from residential mortgages. Credit card reserves would rise by $600 million from the second quarter as the thrift moves securitizations back onto its balance sheet, not because credit quality is deteriorating

-EPJ Newsdesk