WaMu's Hopes for Capital Drying Up

You can find more stories like this in our "On the Brink" series.

Updated from Wednesday, Sept. 24

With Washington Mutual's (WM) efforts to sell itself seemingly stalled, the ailing thrift's options for addressing its shrinking capital base appear to be thinning.

Washington Mutual last week put itself on the auction block amid the market chaos, but despite reported interest from several banks a deal has yet to materialize. While the likes of JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), Toronto-Dominion (TD) and Banco Santander (STD) are interested, WaMu's potential suitors appear to prefer waiting to see what the federal bailout looks like in its final form before pulling the trigger.

Meanwhile, WaMu's situation continues to grow more dire. Federal regulators reportedly have been pressuring the thrift to recapitalize or find a buyer, and two major ratings firms downgraded its credit rating further into junk territory this week.

Private equity investors were given a new incentive to invest in bank stocks Tuesday, when the Federal Reserve eased certain restrictions. But, like potential buyers, investors want to know how much of WaMu's portfolio of toxic mortgages weighing down the bank's attractive retail franchise can be assumed by the federal government in the $700 billion pool being debated by Congress.

"The chance for [WaMu] to remain independent ... seems to be dimming the more and more," says Jaime Peters, an equity analyst covering large-cap banks at Morningstar.

However, the Wall Street Journal reports Thursday that WaMu has approached private equity firms about a potential takeover. Carlyle Group and Blackstone Group , who would team up with Texas billionaire and bank investor Gerald J. Ford, are among the private equity firms considering a possible deal, the Journal reports, citing people familiar with the situation.

Jim Eckenrode, a banking and payments research analyst at TowerGroup, agrees that a sale may be the only option for WaMu, "just because the loan loss provisions have gone through the roof," which is "certainly a drain on capital," he says.