July 24 (Bloomberg) -- Washington Mutual Inc. tumbled for a second day in New York trading after Gimme Credit LLC said unsecured creditors were ``pulling funds'' from the biggest U.S. savings and loan. Washington Mutual disputed the report.

Gimme Credit analyst Kathleen Shanley cited a decline in federal funds purchased and commercial paper to $75 million from $2 billion at year-end, which Washington Mutual reported this week in its second-quarter results. Securities sold under agreements to repurchase dropped to $214 million from $4.1 billion at the end of 2007, she wrote.

Washington Mutual, known as WaMu, reported a $3.3 billion second-quarter loss on July 23. Rising delinquencies forced the Seattle-based company to boost provisions for bad loans. While WaMu said it has enough capital after raising more than $7 billion earlier this year, Shanley said liquidity remains a concern.

``We won't use the phrase `run on the bank,' but we would be remiss if we did not observe that many creditors have quietly been pulling funds,'' wrote Shanley, based in Chicago. Their actions are ``presenting an increasing funding challenge,'' she wrote. Gimme Credit is an independent research firm serving corporate bond investors.

``As we stated publicly months ago, WaMu funds all of its business through its banking operations and does not rely on commercial paper,'' the company said in an e-mailed response.

Cash Infusion

Chief Executive Officer Kerry Killinger has said the $7 billion cash infusion led by TPG Inc., coupled with plans to save $1 billion annually by trimming the mortgage business, gives the lender enough money to ride out the U.S. housing slump. The decline in federal funds purchased on WaMu's balance sheet may be the result of the company using cash to prefund short-term maturities and not creditors withdrawing money, which suggests it didn't need to borrow in the Fed Funds market, WaMu said.

WaMu slid 62 cents, or 13 percent, to $4.03 at 4 p.m. in New York Stock Exchange composite trading. The stock fell 20 percent yesterday and has lost 90 percent of its value in the past year.

Some 335 million WaMu shares changed hands, more than eight times the daily average over the past year, according to Bloomberg data. The stock has moved at least 10 percent nine times in the past three weeks.

Credit-Default Swaps

Credit-default swap sellers demanded 14 percentage points upfront and 5 percentage points a year to protect WaMu bonds from default for five years, up from 7.3 percentage points a year yesterday, according to CMA Datavision.

That means it would cost $1.4 million initially and $500,000 a year to protect $10 million in bonds. Yesterday, that would have cost $730,000 a year without an upfront payment. Protection sellers start demanding upfront payments when the risk of an imminent default increases.

Credit-default swaps were conceived to protect bondholders against default, and pay the buyer face value in exchange for the underlying securities or the cash equivalent should the company fail to adhere to its debt agreements.

Analysts at Piper Jaffray Cos., Merrill Lynch & Co. and Friedman Billings Ramsey Group Inc. said after WaMu's earnings report that it may need to raise more cash. According to a clause in the TPG agreement, if WaMu raises more than $500 million in equity at less than $8.75 a share within 18 months, it must compensate TPG for the difference.

Standard & Poor's said WaMu has the liquidity to meet obligations without raising more funds through 2012. Analysts at Lehman Brothers Holdings Inc. and UBS AG also said the company should have enough capital.

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

Last Updated: July 24, 2008 17:34 EDT