WaMu outlook weak but soothes some investors

By Jonathan Stempel

NEW YORK (Reuters) - Washington Mutual Inc's WM.N revelation that it plans another big write-down for soured loans but has enough capital to survive soothed some analysts and investors who were fearful that the housing crisis might cripple the largest U.S. savings and loan.

The Seattle-based thrift late Thursday said it expected this quarter to set aside $4.5 billion for credit losses, down from the second quarter's $5.9 billion, and write off $2.7 billion for bad loans. Moody's Investors Service cut its credit rating to "junk" status.

Washington Mutual made its unusual disclosure six weeks before it planned to report earnings to calm investor fears after its shares had plunged 34 percent this week and 92 percent in the last year. The shares on Thursday fell below $2 for the first time since 1990.

The outlook suggests that new Chief Executive Alan Fishman will on October 22 report the thrift's fourth straight quarterly loss. Analysts on average expect a loss of $1.16 per share, or roughly $1.2 billion, Reuters Estimates said. The thrift has said home loan losses could reach $19 billion through 2011.

At least four analysts cut their price targets for the thrift's stock. But Howard Shapiro of Fox-Pitt Kelton Cochran Caronia Waller said the thrift's disclosures on credit, deposits, liquidity and fee income "should calm some of the hysteria surrounding the stock and the company's future."

And Goldman Sachs & Co's Brian Foran, who also cut his price target, upgraded the thrift to "neutral" from "sell," saying the projections "provide a glimmer of a silver lining that the worst may be seen. The main risk remains that deposits begin to be withdrawn quickly."

Shares of Washington Mutual were down 10 cents, or 3.5 percent, to $2.73 in afternoon trading on the New York Stock Exchange. They have traded Friday in a range of $2.43 to $3.07. Through Thursday, the shares had fallen 34 percent this week and 92 percent in the last year.

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