Moody's downgrades WaMu

Moody's Investors Service said it downgraded Washington Mutual Bank's issuer rating to Baa3 from Baa2, senior unsecured bonds to Baa3 from Baa2, subordinated bonds to Ba1 from Baa3, base line credit assessment to Ba1 from Baa2 and short-term rating to Prime-3 from Prime-2.

The agency lowered Washington Mutual Inc.'s senior unsecured bonds to Ba2 from Baa3, its preferred stock to B2 from Ba2, its senior unsecured bonds to Ba2 from Baa3 and its senior subordinated bonds and subordinated bonds to Ba3 from Ba1.

The preferreds of Providian Capital I, Washington Mutual Capital I and Washington Mutual Capital Trust 2001 were downgraded to Ba3 from Ba1, and the agency lowered to B2 from Ba2 the preferreds of Washington Mutual Pfd Funding (Cayman) I Ltd. and Washington Mutual Preferred Funding Trust I-IV.

Finally, the agency downgraded Bank United's subordinated bonds to Ba1 from Baa3 and Providian Financial Corp.'s senior unsecured convertible bonds to Ba2 from Baa3.

This concludes the review that began on July 22, and the outlook is negative.

Moody's said the downgrade resulted from WaMu's reduced financial flexibility, deteriorating asset quality and expected franchise erosion as the bank continues to face adverse performance across its asset base. In the agency's view, WaMu's ability to deal with this issue is constrained by prospective earnings that are inadequate to restore or attract capital.

Positively, Moody's noted that WaMu currently has limited exposure to short-term wholesale funding, and the Federal Home Loan Bank has been a stable source of funding for the bank throughout the credit crisis.

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