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Washington Mutual to Get $7 Billion in Fresh Capital

Reuters
Tuesday, 8 Apr 2008 | 10:20 AM ET

Washington Mutual, the largest U.S. savings and loan, said it obtained a $7 billion capital injection from private equity firm TPG and other investors, but that mortgage problems will lead to a $1.1 billion quarterly loss and the elimination of 3,000 jobs.

Shares fell as much as 13 percent.

The thrift also plans to close its 186 stand-alone home loan offices and stop offering loans through mortgage brokers.

It will instead offer home loans in its retail branches, where some of the affected mortgage workers will be offered jobs.

WaMu, as the thrift is known, said it expects a first-quarter loss of $1.40 per share, more than twice the 51 cents that analysts on average expected.

The Seattle-based thrift expects to set aside $3.5 billion in the quarter for loan losses, nearly twice what it previously projected, and said net charge-offs will total $1.4 billion.

WaMu will also reduce its quarterly dividend per share to 1 cent from 15 cents, saving $490 million a year.

The cut is the second in four months.

CNBC Investors' Tools:

Chief Executive Kerry Killinger is raising money and curbing risky lending to boost capital and assure investors the 119-year-old thrift can survive the nation's housing crisis.

The capital boost is $2 billion larger than earlier expected.

"These companies are getting serious," said James McGlynn, a portfolio manager at Summit Investment Partners in Southlake, Texas. "They are bringing in capital, (and) getting out of businesses where they weren't efficient. It just seems like they are getting their comeuppance."

WaMu's stock tanked after rising 29 percent on Monday, when news of the thrift's plans to raise capital first surfaced.

WaMu joined more than a dozen commercial and investment banks to seek cash from outside investors in the last year, following more than $200 billion of write-downs and credit losses tied to the nation's housing and credit crises.

The thrift lost $1.87 billion in the fourth quarter, hurt by exposure to housing markets such as California and Florida.

While WaMu last year pared its exposure to subprime and other risky home loans, it didn't do so fast enough.

In a statement, Killinger said: "This substantial new capital -- along with the other steps we are announcing today -- will position us for a return to profitability as these elevated credit costs subside." Killinger was not immediately available for further comment.

Faber Report: Washington Mutual
Washington Mutual gets a $7 billion investment from a TPG-led group, and CNBC's David Faber has the latest.

In the capital-raising, WaMu sold about 176 million shares at $8.75 each, for gross proceeds of $1.54 billion.

It also sold $5.5 billion of convertible preferred shares with an initial conversion price of $8.75.

David Bonderman, a founding partner of TPG and a director of WaMu from 1996 to 2002, will rejoin WaMu's board.

Larry Kellner, the chief executive of Continental Airlines Inc , will become a board observer, at TPG's request.

The investment could signal confidence in the banking system, but expose TPG to losses if WaMu's business sours.

"It's a sign of smart money making a major bet in what they hope is a bottom in real estate," said Robert Stovall, a strategist at Wood Asset Management in Sarasota, Florida.

It was not immediately clear which other investors were involved in the transaction, or how much each invested.

Neither TPG nor Continental was immediately available for comment.

Last year, WaMu was the nation's sixth-largest U.S. mortgage lender and 11th-largest subprime lender, according to the newsletter Inside Mortgage Finance.

The thrift's other units include retail banking, commercial banking and credit cards.

To shore up capital, WaMu in the fourth quarter cut its dividend 73 percent and sold $3.9 billion of preferred shares.

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