Washington Mutual Gets $7 Billion From TPG-Led Group

Washington Mutual Gets $7 Billion From TPG-Led Group

April 8 (Bloomberg) -- Washington Mutual Inc., the largest U.S. savings and loan, got $7 billion from a group of investors led by David Bonderman's TPG Inc. after losses on subprime loans ate up capital and erased 74 percent of its market value.

Washington Mutual sold 176 million shares at $8.75 a piece, 33 percent below yesterday's closing price on the New York Stock Exchange, and preferred shares, the company said in a statement today. TPG will buy $2 billion of the shares. The lender also slashed its dividend and announced 3,000 job cuts. The stock fell as much as 13 percent.

Chief Executive Officer Kerry Killinger, struggling to reassure investors the bank has enough capital to stay afloat, said the dividend cut will preserve $490 million annually. Seattle-based Washington Mutual, which said today it lost $1.1 billion in the first quarter, will stop making loans through mortgage brokers and close 186 home-lending offices.

``It's dilutive for shareholders on a massive basis, so it's not great for the company, but it's great for the system that capital can be raised during these stressful times,'' Vincent Farrell, a principal at New York-based Scotsman Capital Management LLC, said on Bloomberg Radio.

Washington Mutual fell $1.12, or 8.6 percent, to $12.03 a share at 11:25 a.m. in New York Stock Exchange composite trading.

Banks and securities firms including Citigroup Inc. and Lehman Brothers Holdings Inc. sought cash infusions after record losses tied to subprime home loans. The world's biggest financial companies have written down assets or set aside money to cover more than $232 billion in bad loans, according to data compiled by Bloomberg.

`Substantial' Capital

``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 said in the statement.

Washington Mutual said it will set aside $3.5 billion because of expected losses on home loans and expects to charge off $1.4 billion in losses during the first quarter. The company had been expected to lose $344 million, or 39 cents a share, the average of industry analysts who follow the company, CreditSights Inc. analyst David Hendler said in a report today.

Board Changes

Washington Mutual will stop making loans through mortgage brokers and close its home loan offices, while focusing on its 2,500 bank and small business lending offices. The quarterly dividend was cut to 1 cent a share from 15 cents.

The infusion, originally planned for $5 billion, was increased because of strong investor demand, according to Washington Mutual spokesman Derek Aney.

Bonderman, 65, TPG's founding partner, will join the board. Larry Kellner, CEO of Continental Airlines and former chief financial officer of American Savings Bank, will be an observer at TPG's request. Bonderman declined to comment through a spokesman, Owen Blicksilver.

Bonderman has worked with Killinger before, serving as a WaMu director from January 1997 through December 2002. The two also crossed paths in 1996 when Washington Mutual bought American Savings Bank of Irvine, California, from Keystone Holdings Inc., a firm owned by investor Robert Bass where Bonderman once was chief operating officer.

Bass's firm acquired American Savings, one of the biggest U.S. savings and loans to fail in the 1980s, in a government- assisted rescue during 1988 for $350 million in new capital plus $50 million in acquisition costs. Eight years later, Washington Mutual purchased the lender from Bass for stock valued at $1.2 billion.

TPG Investments

TPG teamed with Kohlberg Kravis Roberts & Co. to buy Dallas-based power producer TXU Corp. last October. It was seeking more than $15 billion for a new fund, potential investors said in February.

TPG Partners IV, the $5.3 billion fund the firm started in 2003, has since returned an average of almost 36 percent annually to investors, according to data on the Web site of the California Public Employees' Retirement System. The firm's 1994 fund also had an annual return of 36 percent, according to data compiled by an Oregon state investment fund.

Washington Mutual ranked sixth among U.S. mortgage companies last year, according to trade publication Inside Mortgage Finance. The lender, known as WaMu, once ranked among the 11 biggest originators during 2006 of subprime mortgages, which are made to people with the weakest credit.

Overdue loans and foreclosures set a record last year in the U.S., and Washington Mutual posted its first loss since 1997 in the fourth quarter. The company wrote down the value of its home-mortgage unit by $1.6 billion.

Falling Market Value

Washington Mutual has lost about three-quarters of its market value in the past year ended last week, leaving the company almost tied with Cleveland-based National City Corp. among the worst performers in the 24-stock KBW Bank Index. National City, Ohio's biggest bank, ranked 10th among subprime lenders in 2006, according to a March ranking last year by Inside Mortgage Finance.

Subprime loans typically have the highest default rate, and bad subprime mortgages set a record in the fourth quarter, according to the Mortgage Bankers Association. That contributed to the current U.S. housing slump, the worst in at least a quarter of a century.

Advisers

More than 100 home lenders have sought buyers, halted loans or gone out of business since the start of 2007, according to data compiled by Bloomberg.

The company ranks sixth with a 3.2 percent share of U.S. bank deposits behind Bank of America Corp., JPMorgan Chase & Co., Wachovia Corp., Wells Fargo & Co. and Citigroup Inc., Killinger said in a Jan. 29 investor conference. It had $194.3 billion in deposits as of Dec. 31.

Goldman Sachs Group Inc. and Lehman were the placement agents for Washington Mutual. The bank's legal adviser was Simpson Thacher & Bartlett LLP. Credit Suisse Group served as financial adviser to TPG, while Cleary Gottlieb Steen & Hamilton LLP served as the legal adviser.

BLOOMBERG