WaMu gyrates on downgrades, capital concerns

By Jonathan Stempel

NEW YORK (Reuters) - Washington Mutual Inc WM.N shares gyrated Wednesday after the largest U.S. savings and loan said it doesn't need more capital, though its $3.33 billion quarterly loss prompted analyst downgrades and a call to remove Chief Executive Kerry Killinger.

Shares of the thrift were down 60 cents, or 10.3 percent, at $5.22 in afternoon trading on the New York Stock Exchange, after earlier trading in a range of $5.17 to $6.27. The shares' 52-week high is $41.36, reached exactly a year ago.

Merrill Lynch & Co analyst Kenneth Bruce downgraded Washington Mutual to "underperform" from "neutral," while Standard & Poor's cut its credit rating to one notch above "junk" status. A day earlier, Moody's Investors Service said it might downgrade the Seattle-based thrift to junk.

Capital looks "dangerously close" to an acceptable minimum, wrote Bruce, who essentially reversed an April 8 upgrade. "Persistent credit problems likely will lead to further capital erosion and a possible dilutive equity offering."

Washington Mutual's second-quarter loss was three times what analysts on average had expected. The thrift set aside $5.91 billion for credit losses, up from $3.51 billion in the first quarter, citing delinquencies in option adjustable-rate mortgages and other home loans.

"We are planning for continued softness in housing for the next several quarters," Killinger said in an interview. "The capital that we have in place is sufficient to manage through this period."

Among larger lenders to report quarterly results, Wachovia Corp WB.N had an $8.86 billion loss, and Citigroup Inc (C.N) lost $2.5 billion. Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Wells Fargo & Co (WFC.N) said profit fell.

Friedman, Billings, Ramsey & Co analyst Paul Miller halved his price target for Washington Mutual to $4, saying capital levels could face "tremendous pressure" if residential mortgage losses topped the roughly $19 billion the thrift expects.