WaMu gets $7 bln infusion, cuts jobs, sees loss

NEW YORK Tue Apr 8, 2008 6:32pm EDT

A woman walks into a Washington Mutual bank in New York April 7, 2008. REUTERS/Joshua Lott

A woman walks into a Washington Mutual bank in New York April 7, 2008.

Credit: Reuters/Joshua Lott

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NEW YORK (Reuters) - Washington Mutual Inc, battered by mortgage delinquencies and defaults, said Tuesday it obtained a $7 billion capital injection from private equity firm TPG Inc and other investors, but projected a $1.1 billion quarterly loss and set plans to eliminate 3,000 jobs.

The largest U.S. savings-and-loan also said it will close its 186 stand-alone home lending offices and stop offering loans through mortgage brokers by the end of June. It will instead offer mortgages in its roughly 2,300 retail branches, where some of the affected workers will be offered jobs.

WaMu, as the thrift is known, will also slash its quarterly dividend per share to 1 cent from 15 cents, saving $490 million a year. It is the second dividend cut in four months.

Shares of WaMu closed down 10 percent, dropping $1.31 to $11.81 on the New York Stock Exchange. The shares had risen $2.95, or 29 percent, on Monday after news of the plan to raise capital first surfaced. WaMu's capital boost was $2 billion larger than earlier expected.

The expected first-quarter loss is $1.40 per share, more than twice the 51 cents that analysts had on average expected. Seattle-based WaMu expects to set aside $3.5 billion for loan losses in the quarter, nearly twice its previous forecast, and said net charge-offs will total $1.4 billion.

Chief Executive Kerry Killinger is raising money and curbing risky lending to boost capital and assure investors the 119-year-old thrift can survive the nation's housing crisis.

"These companies are getting serious," said James McGlynn, a portfolio manager at Summit Investment Partners in Southlake, Texas. "They are bringing in capital, (and) getting out of businesses where they weren't efficient. It just seems like they are getting their comeuppance."

WaMu joined more than a dozen commercial and investment banks to seek cash from outside investors in the last year, following more than $200 billion of write-downs and credit losses tied to the nation's housing and credit crises.

While WaMu last year pared its exposure to subprime and other risky home loans, it didn't do so quickly enough. It lost $1.87 billion in the fourth quarter, hurt by exposure to housing markets such as California and Florida.

In a statement, Killinger said: "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 was not immediately available for further comment.

BONDERMAN REJOINS BOARD

In the capital plan, WaMu raised $1.54 billion from a sale of 176 million shares at $8.75 each. It also sold $5.5 billion of convertible preferred shares with an initial conversion price of $8.75. TPG will buy $2 billion of the securities.

"It's a sign of smart money making a major bet in what they hope is a bottom in real estate," said Robert Stovall, a strategist at Wood Asset Management in Sarasota, Florida.

WaMu said the other investors include many of its top institutional shareholders.

David Bonderman, a founding partner of TPG and a director of WaMu for six years ending in 2002, will rejoin WaMu's board. Larry Kellner, the chief executive of Continental Airlines Inc, will become a board observer, at TPG's request.

TPG, once known as Texas Pacific Group, reorganized Continental out of bankruptcy in the mid-1990s.

Kellner is also a former chief financial officer of American Savings Bank, which WaMu bought in 1996 from Keystone Holdings Inc, a firm owned by a group led by the investor Robert Bass. Bonderman was chief operating officer.

Bonderman and Kellner were not available for comment.

WaMu estimated the transaction would dilute book value per share by about 30 percent. The company's market value was about $11.6 billion after the close of trading on Monday.

Last year, WaMu was the nation's sixth-largest mortgage lender and 11th-largest subprime lender, according to the newsletter Inside Mortgage Finance.

The thrift's other units include retail banking, commercial banking and credit cards. WaMu in the fourth quarter cut its dividend 73 percent and sold $3.9 billion of preferred shares. It ended the year with 49,403 employees.

Goldman Sachs & Co, Lehman Brothers Inc and the law firm Simpson Thacher & Bartlett LLP assisted WaMu on the TPG-led transaction. Credit Suisse and the law firm Cleary Gottlieb Steen & Hamilton LLP advised TPG.

(Additional reporting by Dan Wilchins and Al Yoon, editing by Gerald E. McCormick/Andre Grenon)

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