–SEATTLE (AP) - Washington Mutual's move to slash staff and launch a massive stock offering to shore up its finances may smack of desperation, analysts said yesterday as the bank's shares tumbled nearly 12 percent.

The stock price of the nation's largest savings and loan fell sharply a day after it said it would close offices, lay off more than 3,000 workers, and cut its dividend. It also worried investors by saying it would set aside up to $1.6 billion for loan losses in the fourth quarter and sell $2.5 billion worth of convertible preferred stock.

WaMu has not yet priced its offering, but Friedman, Billings, Ramsey analyst Paul Miller wrote in a note to investors that he has heard it could yield eight percent to 8.5 percent; Bear Stearns analyst David Hilder estimated the dividend rate closer to 10 percent.

"We believe that cost could wipe out all of WaMu's 2008 earnings," Mr. Hilder wrote, calling the stock offering and dividend cut "desperate measures."

Other recent deals support analysts' concerns that the stock sale will prove expensive for WaMu.

Last month, Citigroup Inc. took a $7.5 billion investment from the Abu Dhabi Investment Authority in exchange for up to 4.9 percent of Citigroup's equity, and government-sponsored mortgage finance companies Freddie Mac and Fannie Mae both recently announced sales of $6 billion and $7 billion in preferred stock, respectively.

In exchange for its cash, the Abu Dhabi fund will get an 11 percent annual yield from Citigroup. The Freddie Mac offering has a fixed dividend rate of 8.375 percent, almost two percentage points higher than its last sale of preferred stock, in September.

Converting preferred shares into common stock dilutes their value for existing stockholders. In a research note, Citi Investment Research analyst Bradley Ball estimated the WaMu deal will add 106.4 million shares to the float, diluting current prices by about 12 percent.

WaMu shares fell $2.46, or 12.4 percent, to close at $17.42 yesterday.

What's more, analysts said Tuesday that WaMu's $2.5 billion cash infusion may not be enough. FBR's Paul Miller wrote that he expects the company to try to raise more money in coming months.

After cutting 1,000 jobs and dismantling much of its sub-prime mortgage operation in September, Seattle-based WaMu will now get out of the business entirely.

The company said on Monday it will close about 190 of its 336 home loan centers and sales offices, shut down nine call centers and eliminate 2,600 home loan workers and 550 corporate and support jobs.

The company also said it will shutter WaMu Capital Corp. and rely on third party broker-dealers to sell mortgage-backed securities.

These changes, meant to address what WaMu called "unprecedented challenges in the mortgage and credit markets," will save the thrift $140 million in the fourth quarter. But the company still expects to post a loss, due in part to a $1.6 billion charge for the writedown of goodwill associated with the shrinking home loans business.

On top of that, WaMu now expects to set aside between $1.5 billion and $1.6 billion in the fourth quarter for future loan losses, up from the $1.1 billion to $1.3 billion predicted by executives in early November.

For the first quarter of 2008, the company said it expects loan losses to total $1.8 billion to $2 billion. Loan losses will remain high throughout the year, WaMu added.

"The magnitude of the new loss guidance for 2008 is disconcerting," wrote Morgan Stanley analyst Kenneth Posner in a research note.

The company also slashed its quarterly dividend to 15 cents per share from its most recent dividend of 56 cents per share, for savings of more than $1 billion.