Posted on 04/08/2008 7:44:33 AM PDT by BenLurkin
SEATTLE (AP) -- 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.
Washington Mutual will sell equity securities to an investment fund managed by TPG Capital and to other investors in order to raise the funds. Washington Mutual did not disclose the names of other investors, though the bank said they include top institutional shareholders.
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 percent discount to Monday's closing price of $13.15.
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 percent, to $12.57 in Tuesday trading. They had soared more than 29 percent Monday on news that a capital deal was near. WaMu's stock tumbled nearly 70 percent last year.
To further shore up its capital position, Washington Mutual will also cut its quarterly dividend to 1 cent from 15 cents[OUCH!]. 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.
It joins other companies that have raised capital in the wake of problems in the mortgage market, including Countrywide Financial Corp. and Thornburg Mortgage Inc. Countrywide agreed in January to sell itself to Bank of America Corp. for about $4 billion. Earlier this month, Thornburg said it raised $1.35 billion to shore up its capital base and avoid bankruptcy.
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
bttt
Duplicate post.
(Missed it “by that much”)
Good news.
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.
Which is all technical jargon in that they are royally screwing existing shareholders by diluting their shares. And the stock goes UP 29%. What a crazy world...
Notice how missing from this story is “the who” and “the why”. I mean, of course, defaults by fleeing illegal alien families who WaMu approved mortgages for.
I bank at WaMu. I discussed this matter with my bank assistant manager a few weeks ago, and he agreed. WaMu allows bank accounts and mortgages to persons with matricula cards which everyone knows are phony. Basically, WaMu is doing business with lawbreakers, and now it’s come back to bite them. I’m still trying to find a bank that doesn’t do business with illegals, but unfortunately they all do. It’s good for business...until they default and flee in the middle of the night.
Bullcrap.
WaMu isn't receiving any capital. They're SELLING capital for $7 billion cash.
Unless you’re a shareholder.
I think it’s time for me to find a new back. I had no idea they were a savings and loan outfit.
WAMU is my bank. They recently chopped the interest rate on my savings account without telling me. (Turns out they can do this at any time, without any notification.)
I remember when Washington Mu was being touted as the best bank stock.
HA! I read this the day after I drained my Wamu accounts to below $5.
I didn’t take out seven billion though. Shoot, it was less than half that!
I wonder if they were “hours from bankruptcy” like Bear Stearns.
I guess that depends on whether or not you believe WAMU would survive long-term without raising capital. Diluted shares of a going concern are worth more than undiluted shares of a bankrupt company. But I get your point.
Yep, unless you lock in a rate through a CD you will probably see your rate go down every time the Fed cuts rates. WAMU’s not unique in that regard. A deposit is essentially a floating rate loan to your bank, and it will move with the market.
Don’t be afraid to ask for a higher rate, though. Depending on your balances you probably have a good chance at getting more than their posted rate.
“Which is all technical jargon in that they are royally screwing existing shareholders by diluting their shares. And the stock goes UP 29%. What a crazy world...”
This is the sort of thing that really ticks me off as a shareholder (I own no WM). There are few if any protections from a few jack***es at the top issuing a whole bunch of new stock, squashing the value of the portion of the company you own.
The only real protection seems to be that NYSE *may* delist you if you issue too much (20%, I believe) without shareholder approval. That is a massive amount of dilution to just allow without a vote. And half the time, the companies don’t care. Look at Bear Stearns. Who cares if they get delisted - they’re going to be anyway with the bailout.
Even with this injection, they’re never going to achieve the previous cash flow they had. They’ve announced that they’re out of the wholesale business, and their retail business is going to be cut way, way back.
So what the owners get after this is all done... is a very uncertain bank.
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