Washington Mutual (WaMu) suffered another blow yesterday when Standard & Poor's Ratings Services downgraded the embattled Seattle-based bank's creditworthiness yet again, saying the sale of the bank as a whole unit might not be likely or possible. At the same time, Canada's Toronto-Dominion Bank (TBD), which had been considered on of the frontrunners to acquire WaMu's assets, was also served a warning by analysts who said that a successful bid would led to credit downgrades and stock sell-offs.

WaMu's stock plunged 29.4 per cent on the news of the junking of its creditworthiness, ending at $2.26. The news follows a turbulent week for WaMu in which the company was paired in news reports with multiple potential purchasers, including JPMorgan Chase, Citigroup and TBD. The stock has already tumbled 83 per cent this year. (See: Washington Mutual shares seesaw on conflicting news; Citigroup mentioned as possible acquirer)

According to S&P, the downgrade on WaMu's ''counterparty credit rating'' from BB-/B to CCC/C was made ''due to the increased likelihood that a potential sale of the company may not involve the whole company, which increases the risk of default for holding company creditors.''

Both the prior rating and the new lower one are considered ''junk'' status, and apply to the holding company. S&P said it affirmed its 'BBB-/A-3' counterparty credit rating on Washington Mutual Bank ''because of the breadth of its retail franchise.''

S&P noted that in the stressed financial services sector, there are few potential buyers not struggling with their own capital constraints and mortgage debt issues, narrowing the possibility for an outright takeover of the entire thrift. But a carve-up of Washington Mutual would increase the risk of default for creditors of the holding company, because the bank's stable deposit base would be gone.

WaMu has insisted that its capital levels remain above regulatory standards for being considered "well capitalized," but debt ratings agency Moody's this week cut the financial strength rating of WaMu's main bank subsidiary to "E," its lowest, saying the thrift's capital is insufficient to absorb its mortgage losses.

In a written response, WaMu said that its deposit rating from S&P continued to be investment grade ''and it is important to note that Standard & Poor's rating actions do not affect the safety of customer deposits, which are insured up to the limits allowed by the FDIC.''

S&P, noting press reports that banking regulators may intervene in a sale, said its possible WaMu might not be acquired in its entirety. ''If this is the case, holding company creditors face losses, because the assets of the holding company are not sufficient to cover the full repayment of the $14.4 billion of rated unsecured debt outstanding,'' according to S&P.

Because of the stresses facing financial institutions, S&P pointed out that the available pool of large bank acquirers that ''are not capital constrained or devoid of their own mortgage credit stress is quite small,'' which means there's only a slim possibility that WaMu would be purchased as a whole unit.

Last week, a sale of WaMu seemed imminent, as Goldman Sachs Group Inc. was brought in to assist with a transaction and a major investor removed a potential roadblock to a sale. But after the government announced Friday it was working on a plan to help troubled banks remove billions of bad mortgage debt from their books, momentum stalled as buyers awaited details of the proposal. (See: Bush administration announces $500-billion bailout package)