Wamu's First Buy with New Funds: Time

By Dobbs, Kevin | American Banker, April 8, 2008 | Go to article overview

Wamu's First Buy with New Funds: Time


Dobbs, Kevin, American Banker


A multibillion-dollar capital injection expected to be sealed by today could give Washington Mutual Inc. the flexibility it needs to ride out the credit storm.

At the very least, the arrangement would buy the company much needed time to right itself.

Mark Fitzgibbon, the head of research at Sandler ONeill and Partners LP in New York, called the news a very big vote of confidence in Wamus ability to withstand the credit crunch. However, he and others said it remained unclear whether the investment would bolster Wamus plan to make its retail bank its core engine for growth.

On Monday the market certainly read the possible investment as a positive, sending Wamus shares soaring nearly 30%.

The Seattle thrift company was close to sealing a deal Monday with a group of investors, led by the private-equity firm TPG Inc. of Fort Worth, to inject about $5 billion, according to a source familiar with the negotiations.

The source said that certain key details had yet to be finalized including the amount, which might end up being more than $5 billion but that Wamu expected to sign a deal late Monday or early today. He said the infusion should enable the company to address capital concerns and remain intact with its current executive leadership.

Under yearend figures, a $5 billion investment would represent about a 25% boost to Wamus capital.

Wamu and TPG spokesmen declined to comment.

TPG is a very respected investor, well known for doing their due diligence, for taking a really hard look at the books before putting up any money, Mr. Fitzgibbon said in an interview Monday. He said the firms investment sends a strong signal about Wamus health.

However, Richard Clayton, research director at CtW Investment Group in Washington, D.C., which represents shareholders who collectively own about 3.5% of Wamu, said such a deal would be a mixed bag.

The $328 billion-asset company desperately needs the money, but such an investment would dilute the holdings of current investors no matter the final conversion terms, Mr. Clayton said in an interview Monday.

Without knowing all the details yet, we dont know exactly how much, but there will be significant dilution and shareholders will take a hit, he said.

CtW has called on shareholders to withhold votes for two Wamu board members Mary E. Pugh, who chairs the boards finance committee, which oversees mortgages and James H. Stever, who chairs its human resources committee and leads oversight on executive compensation in hopes the two will step down and make room for new independent members on the board.

CtW has said that a slew of shareholders are looking for a board shake-up. …

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