WAMU Closes It's Wholesale & Retail Divisions

As reported in the New York Times, Washington Mutual, the nation’s largest savings and loan, was poised late Monday to grab a $5 billion lifeline from the buyout firm TPG and other investors in an effort to stabilize its finances, people briefed on the deal said.
But it was unclear whether the investment would be enough to steady Washington Mutual, which has suffered steep losses on mortgages. The thrift may end up being acquired by a larger rival, ending its 119-year run as an independent institution, analysts said.
TPG, formerly the Texas Pacific Group, put up the bulk of the money by buying new preferred stock. TPG, run by David Bonderman, will get one seat on Washington Mutual’s 14-person board. An announcement could come as early as Tuesday.
It is a remarkable turnabout for Washington Mutual, whose once highflying stock has swooned along with home prices. Under Kerry Killinger, its longtime chief executive, Washington Mutual grew rapidly in recent years by lending aggressively, particularly to low- and middle-income borrowers, and by buying smaller competitors.
But during the past year Washington Mutual’s stock price plunged more than 67 percent as the mortgage crisis spread through the financial markets. The stock closed up $2.98, at $13.15 on Monday.
The new funds — equal to more than half of Washington Mutual’s $9 billion market value on Friday — would probably offset losses on par with levels last seen during the savings and loan crisis of the early 1990s. Even so, Washington Mutual, based in Seattle, may yet seek out a diversified partner, given the risks of its big mortgage portfolio and its focus on the West Coast.
“Nobody really knows where the bottom is, but you are taking away the worst-case scenario,” said David Hendler, a financial services analyst at CreditSights, an independent research firm in New York. “This just stabilizes their businesses to cover the losses on the old business that were worsening. They haven’t shown the vision to execute on a growth plan to diversify away from mortgages.”
Washington Mutual is the latest financial institution to go hat in hand to outside investors. Since the sharp downturn in the credit and housing markets last summer, Wall Street giants like Citigroup, Merrill Lynch and UBS have raised tens of billions of dollars. But Main Street lenders have been hit hard, too. Many have slashed their dividends, and investment bankers say several are looking to raise money or are seeking out acquisitions.
The deal is a departure for TPG, which typically seeks to gain control of companies. It also poses significant risks.
Washington Mutual has been hit hard by losses stemming from mortgages made to borrowers with risky, or subprime, credit. The thrift pushed aggressively into products like interest-only and so-called negative amortization loans, which are now among the most toxic.
The lender also has significant exposure in California and Florida, where property values have declined the most.
And after acquiring Providian Financial’s subprime credit card business in 2005, Washington Mutual now expects a sharp increase in loan charge-offs. In response, Washington Mutual has cut its dividend, eliminated several thousand jobs and raised $3.7 billion in a separate preferred stock offering. Still, its stock price has continued to plummet.
The TPG investment was first reported by The Wall Street Journal.