Sept. 24 (Bloomberg) -- Washington Mutual Inc. had its credit rating cut by Standard & Poor's for the second time in nine days, increasing pressure on the savings and loan to find a buyer. The stock fell 29 percent.

S&P reduced WaMu today to CCC from BB-, eight levels below investment grade, saying a sale may not include the entire lender and could leave the holding company with too much debt. WaMu's $143 billion of deposits at 2,300 branches have lured five potential bidders. The company also estimates it faces $19 billion of mortgage-related losses during the next 2-½ years.

``The longer this takes, the more trouble this company seems to be getting in,'' said Chris Armbruster, an analyst at Al Frank Asset Management in Laguna Beach, California, whose $650 million under management includes WaMu shares. ``It's very likely the financial condition of this company is deteriorating while they wait.''

The Seattle-based lender is being pummeled by ratings companies as Treasury Secretary Henry Paulson tries to sell to a skeptical Congress his $700 billion proposal to prop up U.S. banks. All three major ratings companies cut WaMu to junk this month. WaMu says it remains ``well capitalized'' with $50 billion in liquidity.

WaMu tumbled 94 cents to $2.26 at 4:01 p.m. in New York Stock Exchange composite trading. The stock skidded 83 percent this year, the biggest decline in the 24-company KBW Bank Index. WaMu is the only junk-rated company in the index.

JPMorgan, Wells Fargo

Potential bidders include JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Banco Santander SA and Toronto-Dominion Bank, a person briefed on the matter said earlier this week. All five banks have declined to comment.

Unlike bankrupt Lehman Brothers Holdings Inc. and Bear Stearns Cos., which was bailed out this year by JPMorgan, WaMu has consumer deposits that provide a cash cushion. Of the bank's $188 billion in deposits at the end of June, $143 billion is insured by the Federal Deposit Insurance Corp., which fully protects accounts with $100,000 or less, according to FDIC data.

``It is important to note that Standard & Poor's ratings actions do not affect the safety of customer deposits, which are insured up to the limits allowed by the FDIC,'' WaMu said today in a statement.

Even S&P, in cutting WaMu to junk on Sept. 15, acknowledged that the deposit base appears stable and said the company has enough liquidity to meet all fixed obligations through 2010.

Sale Less Likely?

Still, the ``massive'' eight-level rating cut from S&P boosts funding costs and makes a sale less likely, wrote Egan- Jones Co. Ratings Co. President Sean Egan in a report today. WaMu needs cash and will fail without ``timely assistance,'' the Haverford, Pennsylvania-based analyst wrote.

WaMu spokesman Brad Russell said the company doesn't comment on analyst reports.

Moody's said as it reduced its financial strength rating to E from D+ two days ago that benefits to WaMu from the Treasury's plan are ``uncertain.'' Fitch Ratings cut WaMu's long-term credit rating to BBB- from BBB on Sept. 11 after the company forecast a third-quarter loan-loss provision of $4.5 billion. Today the company reduced the long-term issuer default rating to B- from BBB- because of limited options to raise capital.

Sellers of credit-default swaps on WaMu's debt today demanded 65 percentage points upfront and 5 percent a year to protect the company's debt from default during the next five years, according to broker Phoenix Partners Group. That compares with 57 percentage points upfront yesterday and means it would cost $6.5 million initially and $500,000 a year to protect $10 million in debt.

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

Last Updated: September 24, 2008 19:51 EDT