NEW YORK -- Washington Mutual Inc. shares extended their downward spiral Monday as investors wagered on which troubled financial firm could be next to fall following the demise of Lehman Brothers Holdings Inc. and Merrill Lynch & Co.

WaMu shares fell 73 cents, or 26.7 percent, to close at $2, after losing 36 percent last week. Shares continued to fall in after-hours trading, dropping 20 cents, or 10 percent, to $1.80. The stock is down about 85 percent for the year.

Standard & Poor's Ratings Service late Monday cut its counterparty credit rating on WaMu to junk, to "BB-" from "BBB-."

"Clearly, capital pressures remain high given the expectation for a loss in 2008 and possibly in 2009," S&P said. "WaMu's balance-sheet growth remains constrained in the midst of earnings pressure, and financial flexibility is clearly restricted given the low pricing of its equity securities."

The action follows downgrades by both Moody's and Fitch last week.

WaMu said in a statement that it did not expect the S&P downgrade to have a material impact on its borrowings, collateral or margin requirements. It said its capital levels at the end of the quarter are expected to remain "significantly above" required levels and that its outlook for expected credit losses is unchanged.

There are no outward signs there is a run on the bank, but some account holders admit they are getting nervous.

“I’m concerned, especially with the events of today. You know Washington Mutual was pretty high flying in this sub prime mortgage business,” said Phil Melberg, vice-president of the Harbor Reach Condo Association in Kent. His association has pulled out more than $150,000 from its account with Washington Mutual.

“We realized that we had $258,000 in Washington Mutual and we just decided that we should bring our balance to at least where it is covered by the FDIC,” said Melberg.

The FDIC covers individual accounts up to $100,000.

Some speculate WaMu could be the next victim in the banking crisis. With Lehman Brothers filing for bankruptcy and Merrill Lynch being sold to Bank of America, Wall Street is being rocked to its core.

"The market is anticipating the worst," said Joe Keetle, senior wealth manager for Cleveland-based Dawson Wealth Management. "They seem to look for the next financial or investment banking firm or whatever to be on the short list to be in trouble."

The primary concern for investors is whether WaMu has enough capital to ride out the remainder of the credit crisis.

"Underlying all of the issues that face Washington Mutual is the rising and unknown level of credit expenses," wrote Keefe, Bruyette & Woods analyst Frederick Cannon in a note to clients Monday. Cannon believes a capital raise could improve the confidence of depositors, regulators and investors.

In an effort to squelch investor anxiety, WaMu insisted Thursday that it has sufficient capital to fund its operations, but also said it plans to take another multibillion write-down for bad bets on mortgage securities.

Investment experts say this is not the time for knee jerk reactions, especially with retirement plans.

“You are not spending that money today. It’s there for the long run. It’s there so that you have it when you retire,” said investment advisor Lori Kaufman. “You've got a long time for it to run and markets do correct.”

(The Associated Press contibuted to this report.)