Washington Mutual Inc., the country's largest savings and loan, said Tuesday it will receive $7 billion in new capital from an investment group led by private equity firm TPG.
The new investment will boost the Seattle-based bank's capital at a time when it has been hit hard by rising delinquencies and defaults among mortgages. The bank said it will lose $1.1 billion during the first quarter and take a provision for loan losses of $3.5 billion.
TPG founding partner David Bonderman will also join Washington Mutual's board of directors as part of the agreement.
In return for the $7 billion, investors will receive 176 million shares of common stock for $8.75 per share, a 33% discount to Monday's closing price of $13.15.
Approval needed. Washington Mutual also issued about 55,000 shares of preferred stock at a purchase price of $100,000 per share. After certain approvals - including the backing of shareholders allowing the company to increase its share count --the preferred stock can be converted to common shares. The conversion price will also be $8.75 per common share.
Shares of Washington Mutual fell 58 cents, or 4.4%, to $12.57 in Tuesday trading. They had soared more than 29% Monday on news that a capital deal was near. WaMu's stock tumbled nearly 70% last year.
To further shore up its capital position, Washington Mutual will also cut its quarterly dividend to 1 cent from 15 cents. The dividend reduction is likely to save the company about $490 million in cash annually.
Washington Mutual has been struggling in recent quarters with the fallout from a weakening mortgage market, especially among subprime mortgages - loans given to customers with poor credit history.
As Washington Mutual looks to improve its credit quality, the bank said it will no longer purchase mortgages from brokers and close all its freestanding home loan offices. Those moves are expected to be completed by the end of the second quarter.
The bank will instead focus its mortgage-originating efforts in its retail bank branches and by expanding its call center operations.
Fitch Ratings did not change its rating on WaMu but said it "views the capital measures as critical to [the company's] flexibility to manage through the continued and increasingly severe deterioration in consumer loan credit quality." To top of page
Source: http://money.cnn.com/2008/04/08/news/companies/wamu.ap/index.htm
Date: April 8. 2008