July 23 (Bloomberg) -- Washington Mutual Inc., the biggest U.S. savings and loan, fell 20 percent in New York trading after failing to convince some analysts that it has enough cash to weather more declines in the housing market.

Piper Jaffray Cos. analyst Robert Napoli cut his rating to ``sell'' in a report today because the Seattle-based lender's balance sheet is ``burdened with high-risk mortgage loans.'' Napoli and analysts at Merrill Lynch & Co. and Friedman Billings Ramsey Group Inc. said Washington Mutual may need more capital.

Washington Mutual Chief Executive Officer Kerry Killinger reported a second-quarter loss yesterday that extended the deficit to $6.6 billion in the past nine months as rising delinquencies forced an increase in the reserve for bad loans. A $7 billion cash infusion led by TPG Inc. coupled with plans to save $1 billion annually by trimming its mortgage business gives the company enough money to handle the slump, Killinger said.

``The housing market continues to deteriorate; we're seeing no stabilization out there at all,'' Friedman Billings Ramsey analyst Paul Miller said today in a Bloomberg Television interview. ``At some point WaMu is going to have to come back to the capital markets.'' Miller, based in Arlington, Virginia, rates the shares ``underperform.''

WaMu fell $1.17 to $4.65 at 4:02 p.m. in New York Stock Exchange composite trading. The stock has tumbled 66 percent this year.

Bad-Loan Provision

Mortgage-related losses through 2011 will be at the high end of a $12 billion to $19 billion forecast, WaMu said yesterday. The lender increased provisions for loan losses by 69 percent, to $5.9 billion, citing overdue payments on option adjustable-rate mortgages.

Merrill Lynch analyst Kenneth Bruce in San Francisco cut his rating to ``underperform'' today, citing the likelihood of $27 billion in cumulative losses through 2010 and a tangible equity ratio in 2011 that's below a ``self-imposed floor.''

``Capital ratios appear dangerously close to minimum acceptable level,'' Bruce wrote in a note to investors. ``There is little appetite for regulators to want to intercede on behalf of depositors, leading to regulatory encouragement to dilute current holders.''

The subprime meltdown at Washington Mutual turned into a broader mortgage crisis as tumbling home prices in California, where the lender has half its loans, left an increasing number of customers unable to make payments. Killinger, 59, is under pressure after cutting 10 percent of the workforce, slashing the dividend twice and presiding over an 89 percent drop in the stock in the past year.

Second-Quarter Loss

The second-quarter loss of $3.3 billion, or $6.58 a share, compared with net income of $830 million, or 92 cents, a year earlier. The cost of uncollectible loans jumped 58 percent to $2.2 billion from the first quarter.

Option-ARMs, which let borrowers make lower mortgage payments from month to month and defer interest payments, led to costs of $523 million in the quarter, up from $254 million in the prior period. WaMu no longer issues these loans.

``They grew these option-ARM loans a lot,'' said Gary Gordon, an analyst at New York-based Portales Partners LLC, in an interview with Bloomberg Television. ``They grew home equity a lot. Those have been real problems in a falling housing market.'' Gordon rates the shares ``neutral.''

Moody's Investors Service said after WaMu's results that it may reduce its rating on the senior debt to below investment grade. The lender may have ``sizable quarterly losses through 2009,'' Moody's said in a statement.

Rising Foreclosures

The home-loans group lost $1.35 billion after setting aside $1.64 billion in provisions. In California, one in every 192 households was in foreclosure last month, 2.6 times the national average, according to RealtyTrac Inc.

Private equity firm TPG, led by David Bonderman, anchored a $7 billion cash injection for WaMu in April by purchasing stock for $8.75 a share, or 33 percent below the price at the time.

``WaMu's holding company has liquidity capacity to meet its obligations without accessing the capital markets through 2012,'' Standard & Poor's said today as it cut counterparty credit ratings on the lender to BBB-/A-3 from BBB/A-2.

The world's biggest banks and brokerages have racked up $466 billion of writedowns and credit losses because of falling prices of homes and mortgage-backed securities. The companies have raised $345 billion, including $12.1 billion by WaMu in the past year, according to Bloomberg data.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

Last Updated: July 23, 2008 16:09 EDT