WaMu: Creditors have quietly been pulling funds

Washington Mutual (NYSE:WM), can it get any worse? Kathleen Shanley of Gimme Credit wrote: “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.”

Masters, before you think about buying shares on the dip at just $4 a pop, think again.

More from Forbes.com:

Shanley said that other banks have reduced their lending to Washington Mutual. Its monthly intra-bank borrowing declined to $75.0 million at in June, down from $2.0 billion at the end of 2007 and down 71.7% from $3.4 billion a year ago.

Further evidence: Washington Mutual’s subordinated notes due in 2014 are currently yielding 15.0% at a time when five-year Treasury bonds return just 3.3%. That large differential indicates lenders are hesitant to give the bank their money.

Shanley wasn't the first or last to express worry about Washington Mutual this week.

"We are concerned that credit and market conditions will continue to damage Washington Mutual's financial flexibility over the near to intermediate term," wrote Citi analyst Bradley Ball in a note to clients Wednesday. He added, "In particular, we think a credit rating agency downgrade of Washington Mutual's debt to junk levels, as threatened by Moody's, would likely raise the cost of doing business and further dampen performance during the currently challenging environment."

Richard Bove, an analyst at Ladenburg Thalmann, wrote in a note to investors: "It should be noted that these numbers are based on our projection of what Washington Mutual must do to return to profitability, not what is necessarily likely to happen." Bove outlined a series of necessary measures concluding, "If the company achieves these goals it will reach profitability by 2010. If not it will remain unprofitable for the foreseeable future."

On Tuesday, Moody's investor rating service placed Washington Mutual covered bonds under review for possible downgrade. Craig Emrick of Moody's wrote, "Though liquidity remains sufficient, WaMu experienced some declines in its commercial and brokered institutional deposit balances in the second quarter of 2008. This reduced financial flexibility makes it more difficult for the company to successfully navigate through unanticipated events."

Masters, its best to let the dust settle on WaMu, the way things have been going lately, better safe than sorry.