Fitch Ratings Affirms Washington Mutual, Outlook Stable.

NEW YORK -- Fitch Ratings has affirmed the ratings of Washington Mutual, Inc. ('A+/F1') and its banking subsidiaries.

Fitch believes that while profitability has receded from the heady levels achieved in 2002 and 2003, with the decline in mortgage refinancing activity, the contribution from the retail banking business has grown steadily over the past several years following significant investments in de novo branch expansion and an emphasis on core deposit growth and checking accounts.

'While profitability was clearly much stronger in the past two years than it will be in the next two, that comes as no surprise,' said Sharon Haas, Managing Director, Financial Institutions, Fitch Ratings. 'Between the inherently volatile nature of the mortgage banking business and the magnitude of the acquisition activity since 2001, it has been clear for several years that Washington Mutual's 2002 and 2003 profitability levels were not going to be sustainable once refinancing volume slowed.'

The second quarter of 2004 presented Washington Mutual (WM) with an interest-rate environment even more challenging than usual, as less than perfect hedging results emanated primarily from basis risk and contributed to fairly dismal results for the quarter.

'In mortgage banking, there are no perfect hedges,' Haas added, 'and management of earnings volatility is WaMu's most significant risk.'

Fitch believes that Washington Mutual's asset quality remains strong with prime residential mortgages dominating the loan portfolio. In addition, improvements are evident in the level of delinquencies and non-performing assets, and the loan loss reserve provides extremely strong coverage of current levels of net credit losses.

The institution's voracious acquisition appetite in 2001 and 2002, followed quickly by the surge in refinancing activity, caused it to defer the completion of the operational and systems integration of the many acquired platforms, which clearly translates into less efficient operations right now. But, to this end, the integration work is underway and progress is being made. As examples, in July 2004, the conversion to a single servicing platform was completed and WaMu has indicated that it is on track to complete by year-end 2004 the conversion in its residential mortgage business from three point-of-sale systems to two and its fulfillment systems from seven to four. By mid 2005, WaMu has indicated that it expects to be operating only one point-of-sale system and two fulfillment systems. In addition, the bank has begun the process of consolidating fulfillment centers, lockbox operations and post-closing sites.

'Liquidity remains good, with retail deposits - excluding escrow deposits on mortgages - funding approximately half the balance sheet at mid 2004,' Haas said. "Washington Mutual has considerable access to additional capital markets liquidity on both a secured and unsecured basis."

Fitch will continue to monitor the management of holding company liquidity, which was utilized in 2004 to fund significant stock repurchases. Additionally, Fitch will look for capital over the intermediate term to approach the company's stated target of 11% total risk adjusted capital.

Ratings affirmed with a Stable Rating Outlook by Fitch:

Washington Mutual, Inc.

-- Senior debt 'A';

-- Subordinated debt 'A-';

-- S-T debt 'F1';

-- Individual 'B';

-- Support '5'.

Washington Mutual Bank, FA

-- L-T deposits 'A+';

-- Senior debt 'A';

-- Subordinated debt 'A-';

-- S-T deposits 'F1';

-- S-T debt 'F1';

-- Individual 'B';

-- Support '3'.

Washington Mutual Bank

-- L-T deposits 'A+';

-- Senior debt 'A';

-- Subordinated debt 'A-';

-- S-T deposits 'F1';

-- S-T debt 'F1';

-- Individual 'B';

-- Support '3'.

Washington Mutual Capital Trust I

-- Trust preferred 'A-'.

The following ratings have been withdrawn due to redemption:

Homeside Lending, Inc.

-- Senior debt 'A'.

The following ratings have been withdrawn due to merger:

(Washington Mutual Bank fsb is now a subsidiary of Washington Mutual Bank, FA)

Washington Mutual Bank fsb

-- L-T deposits 'A+';

-- Senior debt 'A';

-- Subordinated debt 'A-';

-- S-T deposits 'F1';

-- S-T debt 'F1';

-- Individual 'B';

-- Support '3'.