Washington Mutual, whose stock has been in free-fall much of this week, on Thursday sought to reassure investors its operations are slowly...

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Washington Mutual, whose stock has been in free-fall much of this week, on Thursday sought to reassure investors its operations are slowly improving and that it has sufficient access to capital to stay in business.

In a statement issued after the close of regular trading, the Seattle-based company said it expects to set aside about $4.5 billion to cover bad loans in the third quarter, which ends Sept. 30.

That would be the first time since early 2007 that WaMu’s loan-provision has fallen from one quarter to the next.

In the second quarter, it set aside a staggering $5.9 billion.

WaMu also said it expects to charge off about $2.5 billion in loans for the third quarter, up from nearly $2.2 billion in the second quarter. The rate of increase appears to be slowing, however.

WaMu shares, already down 88 percent over the past year, have been battered in recent days by fears that an agreement with federal regulators may limit lending; that the company might not be able to raise enough money to continue operations; and that a new accounting rule makes a buyout more difficult.

After sinking as low as $1.75 Thursday morning, the stock rallied to finish the regular session at $2.83, up 51 cents. The shares gained further in after-hours trading, with the stock reaching $3.03 by late afternoon.

The thrift said retail deposits, a critical source of operating capital, stood at $143 billion at the end of August — about even with year-end 2007, though down from the $149.5 billion average deposit balance in the second quarter.

WaMu also said it has $50 billion in liquidity — money it can tap from such sources as Federal Home Loan Banks — and expects its capital ratios to remain “significantly above the levels for well-capitalized institutions.”

WaMu “continues to be confident that it has sufficient liquidity and capital to support its operations while it returns to profitability,” the thrift said in its statement.

However, two debt-rating agencies had a different take on WaMu’s prospects. In reports issued late Thursday, Moody’s and Fitch both cut WaMu’s credit ratings, citing poor asset quality, large expected future losses and lack of confidence on the part of the debt markets.

“The company’s limited financial flexibility makes it more difficult for it to replenish capital and preserve diversified and stable funding sources,” Craig Emrick, Moody’s vice president and senior credit officer, said in a statement.

“Both issues are critical to restoring the strength of the institution,” he said.

In response, WaMu said Moody’s action “appears to reflect the current uncertainty in the markets, rather than a thorough evaluation of Washington Mutual’s business, the strength of its national franchise and the steps it is taking to return to profitability.”

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com