Capital Markets

WaMu Raises $7 Billion

A shake-up for the thrift, which lost $1.1 billion in the first quarter, includes a big stock sale to a private-equity firm, new board members, and...
Stephen TaubApril 8, 2008

Washington Mutual said Tuesday that it will get $7 billion from a stock sale to private-equity firm TPG Capital and other investors, representing a huge discount to Monday’s closing price. However, the value of the deal is $2 billion more than earlier reports had predicted.

TPG itself will purchase $2 billion in newly issued WaMu securities. The nation’s largest thrift said that with the proceeds, its capital ratios are expected to remain well above its targeted levels while credit costs in its loan portfolios are at elevated levels in 2008 and 2009. At the same time, the company will continue to grow its leading national bank-franchise business.

“We’re very pleased that TPG and these major investors have expressed their confidence in WaMu’s underlying value and its growth potential,” said WaMu chairman and CEO Kerry Killinger. “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. With the support of these investors, we have every confidence in our ability to deal with today’s market conditions and restore shareholder value.”

The other steps include WaMu appointing TPG founding partner David Bonderman to its board of directors. And Larry Kellner, chairman and CEO of Continental Airlines and former CFO of American Savings Bank, will become a board observer at TPG’s request.

In addition to raising capital, the company said it will all but eliminate its dividend, slashing it to a penny per common share from its most recent quarterly rate of $0.15 per share. WaMu said this will save the company about $490 million annually.

WaMu also revealed that it lost about $1.1 billion in the first quarter.

In the capital-raising transaction, the company sold about 176 million shares of its stock at $8.75 per share, a 33 percent discount from the Monday closing price.

In addition, the company issued about 55,000 shares of convertible preferred stock. After the company’s shareholders and others approve the deal, the convertible preferred stock will automatically convert into the company’s common stock at an initial exercise price of $8.75 per share.

In addition, certain investors who agreed to transfer restrictions on their shares will receive warrants, which will become exercisable for common stock based on a post-closing reference price. These warrants have a term of five years.

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