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WaMu's deposits may buy it time

Washington Mutual Inc.'s $143 billion in retail deposits may buy Chief Executive Officer Alan Fishman enough time to prove wrong speculators who say the bank will follow Lehman Brothers into oblivion.

The reason: Seattle-based WaMu, the biggest U.S. savings and loan, funds its daily business with federally insured deposits at its 2,300 branches, instead of short-term lending from other companies. With no sign that customers are defecting, and another $50 billion on hand for liquidity, newly hired Fishman may ride out the turmoil that halved WaMu's market value in a week. The stock rose 14 percent Tuesday after plunging 27 percent on Monday.

“It takes millions of people making that decision to drive the bank under, as opposed to three banks with exposure to Lehman that say they don't want to renew loans,” said Charles Haley, professor emeritus of finance at the University of Washington in Seattle. “It's a very different scenario.”

WaMu shares jumped after the company said Standard & Poor's Monday decision to cut the lender's credit rating to junk, matching a move by Moody's last week, won't have a material effect. WaMu rose 28 cents to $2.28 in afternoon trading. The stock tumbled Monday as Lehman filed for bankruptcy and Merrill Lynch & Co. agreed to sell itself to Bank of America Corp. for $50 billion.

WaMu spokesman Brad Russell declined to comment.

WaMu's sinking market value leaves it worth close to the $4 a share that JPMorgan Chase & Co. was willing to pay in March, reviving speculation that Fishman may put the entire bank up for sale. “You're going to buy Washington Mutual, if it's bought, for its retail deposit franchise,” Howard Shapiro, a Fox-Pitt Kelton Cochran Waller analyst who rates WaMu “outperform,” told Bloomberg Radio. Branches in California, Florida, Texas and New York “are all very attractive” for a suitor, he said.

S&P acknowledged that WaMu's deposit base is stable, saying in its statement about the downgrade Monday that the company has enough liquidity to meet all fixed obligations through 2010. “The bank is operating with adequate capital positions from a regulatory perspective and has demonstrated funding resilience as the deposit franchise has remained stable,” S&P said.

Investors have soured on WaMu on concern mounting losses from subprime and option adjustable-rate mortgages may force the bank to raise more capital, diluting existing holders' stakes. WaMu said last week that retail deposits are unchanged from a year earlier, down 4.4 percent from June, and that the bank has plenty of cash to operate as it works through losses.

“This is a great time to build a company,” Fishman said in a Sept. 8 interview.

To attract deposits, WaMu offers higher CD rates than competitors. The bank offers a 4.25 percent eight-month CD online. Bank of America pays 3.2 percent for a seven-month term. Wells Fargo & Co.'s rates on five- and nine-month CDs are less than 3 percent.

The deposits may not be enough to save WaMu because of the prospect for losses on subprime loans, said Donald Putnam, managing partner at Grail Partners LLC in San Francisco.

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