WaMu Hit by Moody's Downgrade

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Washington Mutual (WM Quote) shares were falling in premarket trading Friday morning, after Moody's Investors Service downgraded the bank's holding company to below investment grade.

Moody's downgraded Washington Mutual Inc.'s senior unsecured rating to Ba2 from Baa3 and knocked down Washington Mutual Bank's long-term deposit and issuer ratings to Baa3 from Baa2. The outlook is negative, Moody's said.

The ratings action comes after Washington Mutual on late Thursday preannounced third-quarter results, hoping to reassure investors about the health of its capital position and credit outlook. Washington Mutual's stock lost 33% of its value since Sept. 5 and is off more than 90% from its 52-week high.

"The company's limited financial flexibility makes it more difficult for it to replenish capital and preserve diversified and stable funding sources," Moody's Vice President and Senior Credit Officer Craig Emrick said in a statement. "Both issues are critical to restoring the strength of the institution."

WaMu responded by noting its bank remains investment grade, and both the holding company's and bank's ratings remain investment grade at other rating agencies.

"We believe that Moody's decision to reduce the ratings of Washington Mutual, Inc. to below investment grade is inconsistent with the company's current financial condition, as outlined in the press release we issued earlier this afternoon," WaMu said in the statement. "The action by Moody's appears to reflect the current uncertainty in the markets, rather than a thorough evaluation of Washington Mutual's business, the strength of its national franchise and the steps it is taking to return to profitability."

Goldman Sachs had a more positive take, upgrading shares of WaMu to neutral from sell. According to a Bloomberg report, the company might be able to avoid another capital raise, Goldman said.