WaMu CD Rates Suggest Liquidity Fears

Editor's note: Our "On the Brink" series will provide daily insight into the financial firms facing capital shortfalls and the growing pressure from short sellers in the market.

Washington Mutual (WM) is expressing confidence in its liquidity, but it is clear looking at its efforts to attract new deposits that the struggling thrift's situation is increasingly dire.

Washington Mutual Bank's long-term deposit and issuer ratings were downgraded Thursday by Moody's Investors Service, after the bank's preannouncement of third-quarter results showed it had "limited financial flexibility."

The ratings downgrade followed Washington Mutual's update on its third quarter financial performance, when the holding company stated that it expected to remain well-capitalized under regulatory guidelines at the end of the third quarter.

A quick look at Washington Mutual's CD rates -- which BankingMyWay.com says are some of the highest in the country -- offers evidence the thrift is desperate to attract deposits to boost its liquidity:

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Rates based on $10,000 deposit. Source:BankingMyWay.com

In addition to Washington Mutual, troubled lenders BankUnited, FSB (a subsidiary of BankUnited Financial (BKUNA), and Corus Bank, held by Corus Bankshares (CORS), are offering very high CD rates.

Washington Mutual said in its preannouncment that it maintained "a strong liquidity position with approximately $50 billion of liquidity from reliable funding sources." There wasn't much further detail in the company's release. However, as we've pointed out before, Washington Mutual's capital position cannot continue to withstand similar losses for several more quarters.

Moody's action followed a plunge in Washington Mutual shares driven by a Bloomberg article early this week, saying that recently-implemented account rule changes requiring distressed loans be marked to market in the event of a sale, caused at least three potential buyers of WaMu or National City(NCC) to walk away.