By Jennifer Yousfi
Shares Washington Mutual Inc. (WM) dropped 10% yesterday (Tuesday) after the mortgage lender announced it raised $7 billion in capital, while slashing its dividend and cutting 3,000 jobs.
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Seattle-based WaMu, as the savings and loan is often called, raised the capital by issuing 176 million new shares at $8.75 per share, a 33% discount to Monday's closing price of $13.15. It also issued $5.5 billion in convertible preferred shares, the company said in a statement today.
Private equity firm TPG Inc. purchased $2 billion of the new securities. Current WaMu institutional investors mostly purchased the remainder.
The company also announced it would reduce its quarterly dividend rate to $0.01 per common share from its most recent rate of $0.15 per common share. The dividend reduction is expected to preserve approximately $490 million of capital annually.
"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."
WaMu is the latest financial firm to seek an outside capital infusion due to heavy subprime-related losses. For the fourth quarter, the firm took its first loss in 10 years with $3 billion in write-downs due to mortgage and loan losses. The company announced another $1.1 billion lost for the first quarter.
"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.
WaMu is the sixth largest U.S. bank, based on bank deposit assets, with a 3.2% share behind Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Wachovia Corp. (WB), Wells Fargo & Co. (WFC) and Citigroup Inc. (C), Chief Executive Officer said in a Jan. 29 investor conference. WaMu had $194.3 billion in deposits as of Dec. 31, Bloomberg News reported.
Shares of WaMu dropped $1.34, a 10.19% decline, to close at $11.81.
News and Related Story Links:
- News Release:
- Bloomberg News:
Washington Mutual Gets $7 Billion From TPG-Led Group
- Money Morning:
Washington Mutual Gains on Possible Capital Infusion