Standard & Poor’s Ratings Services (S&P) downgraded Washington Mutual Inc’s (WaMu) creditworthiness further into junk territory on Wednesday, noting the increased likelihood that any sale of the company would only be done in piecemeal fashion.
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 — which has fallen 77 percent so far this year.
S&P noted that in the stressed financial services sector, there are few potential buyers not struggling with their own capital constraints and mortgage debt issues, narrowing the possibility for an outright takeover of the entire thrift. But a carve-up of Washington Mutual would increase the risk of default for creditors of the holding company, because the bank’s stable deposit base would be gone.
Washington Mutual assured customers on Wednesday that S&P’s rating actions do not affect the safety of customers’ deposits, which are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits.
WaMu has said 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 its capital is insufficient to absorb its mortgage losses.
Last week, a sale of the nation’s largest savings and loan seemed imminent, as Goldman Sachs Group Inc was brought in to assist with a transaction and a major investor removed a potential roadblock to a sale.
But after the government announced last 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.
A possible scenario attractive to buyers would be WaMu’s takeover by the FDIC.
S&P’s outlook on WaMu’s ratings is negative, implying they could be downgraded even further. But the agency said it could revise the outlook to “developing” if WaMu issued definitive news of a sales transaction or if there was concrete proof of “the potential benefit the Treasury’s new bailout plan may offer to WaMu as an independent company.”
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