Dec. 11 (Bloomberg) -- Washington Mutual Inc., the biggest U.S. savings and loan, fell 12 percent in New York trading after saying it will write down the value of its home-lending unit by $1.6 billion and slash the dividend 73 percent.

Washington Mutual also forecast a loss for the fourth quarter and said it will cut its workforce 6 percent, according to a statement yesterday from the Seattle-based bank. Provisions for bad loans will be $1.5 billion to $1.6 billion, more than the $1.3 billion the company previously predicted. The bank plans to shutter 190 of 336 home-loan centers, and sell $2.5 billion of convertible stock to shore up capital.

Fitch Ratings and Moody's Investors Service Inc. lowered Washington Mutual's credit rating, citing deteriorating mortgage assets. The bank, led by Chief Executive Officer Kerry Killinger, lost 62 percent of its market value this year, the worst performance in the 24-member KBW Bank Index, amid declining U.S. housing prices and record home loan delinquencies.

``They're clearly concerned the industry will stay in a negative mode for an extended period,'' said Richard Bove, an analyst at Punk Ziegel & Co. in Lutz, Florida. ``The fact they're laying off so many people indicates they're concerned this is not just a one-time event.'' He rates the stock ``market perform.''

Washington Mutual fell $2.46 to $17.42 in composite trading on the New York Stock Exchange at 4 p.m., after reaching $17.10 earlier today.

2010 Recovery

Fitch downgraded the firm's rating to A- from A because of ``worsening asset quality,'' and ``extremely challenging conditions in the U.S. residential mortgage market.'' Moody's cut its rating two levels to Baa2 from A3.

``Credit losses from WaMu's mortgage operations will be noticeably higher than previously estimated,'' and the company's profitability won't ``begin to recover'' until 2010, Moody's said in a statement.

Washington Mutual offered a bleak assessment of the mortgage market, estimating that industrywide home loan originations will probably shrink 40 percent in 2008 to $1.5 trillion, down from about $2.4 trillion this year. The company said it plans to cease lending through its subprime mortgage channel, and predicted its provision for bad loans in the first quarter of next year will be $1.8 billion to $2 billion.

The dividend cut, to 15 cents from 56 cents, will save $1.4 billion in 2008, the bank said today in a regulatory filing.

Takeover Speculation

``The company is probably now a candidate for takeover, but the number of potential buyers is very limited,'' Bove at Punk Ziegel said in a research note today. JPMorgan Chase & Co., the third-largest U.S. bank, is probably ``the only realistic'' company that could purchase Washington Mutual, he said.

Thomas Kelly, a spokesman at New York-based JPMorgan, declined to comment.

Bove also lowered his earnings estimate for 2007 to a loss of 19 cents a share from a previous prediction of $2.17 in per- share profit. For 2008, he expects a loss of 69 cents a share, compared with his earlier estimate of $1.99 in profit.

Citigroup Inc. analysts lowered their rating on the stock today to ``sell'' from ``hold'' and cut their fourth-quarter earnings-per-share estimate to a loss of $1.95 from a previous prediction of 17 cents a share in profit. They foresee an 8-cent loss for 2008, wiping out the $2-a-share profit estimate Citigroup previously predicted.

Howard Shapiro, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller, downgraded the stock to ``in-line'' from ``outperform'' today and cut the fourth-quarter estimate to a loss of $2.07 per share from a profit of 29 cents. Analysts at Friedman Billings Ramsey & Co. also changed their estimates to a loss from a profit for the fourth quarter.

UBS Writedown

Mortgage losses have driven some of the world's biggest lenders to seek cash infusions. UBS AG, Europe's largest bank by assets, said yesterday it would write down subprime investments by $10 billion and raise 13 billion Swiss francs ($11.5 billion) by selling stakes to investors in Singapore and the Middle East.

Citigroup, the largest U.S. bank by assets, said last month it would get $7.5 billion from the emirate of Abu Dhabi. Countrywide Financial Corp., the biggest U.S. mortgage lender, sold $2 billion of preferred stock to Bank of America Corp. in August.

Washington Mutual said it would eliminate 2,600 jobs in its home-loan unit, or about 22 percent of that division. The remaining job cuts will come from corporate and support staff. The reductions will cost the bank about $140 million in the fourth quarter, according to the company's statement.

March Target

The restructuring is expected to be completed by March 31, the bank said in a separate regulatory filing yesterday.

Washington Mutual also plans to close WaMu Capital Corp., its broker-dealer business, as well as its mortgage banker warehouse lending unit.

It will give $1 billion of the proceeds from the convertible share offering to the Washington Mutual Bank subsidiary as additional capital, and keep the rest at the holding company for ``general corporate purposes,'' the company said in today's filing.

Lehman Brothers Holdings Inc., Morgan Stanley, Credit Suisse Group and Goldman Sachs Group Inc. are managing the convertible stock sale, Washington Mutual said.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: December 11, 2007 16:21 EST