Washington Mutual Inc., the U.S.’s largest savings and loan, is close to landing a $5 billion cash infusion from private equity group TPG and other investors, a person familiar with the matter said Monday.
Wall Street cheered news that WaMu may join a growing list of battered financial institutions that have secured much-needed cash since the credit crisis began last summer. Shares jumped 29.3 percent, or $2.98, to close at $13.15 Monday.
The investment would give TPG, formerly Texas Pacific Group, a mix of common and preferred stock, totaling less than 25 percent of WaMu’s outstanding shares, according to the person, who asked not to be named because the deal has not been announced. TPG would also get a seat on WaMu’s board.
Other investors include existing WaMu institutional shareholders and other private equity groups, the person said.
The Wall Street Journal reported the deal in Monday editions.
Shares of the Seattle-based thrift have come under heavy fire as problems in the housing and credit markets have deepened. WaMu’s stock shed nearly 70 percent in 2007, and the sinking value of WaMu’s mortgage portfolio and soaring loan-loss provisions — the amount it socks away to cover bad loans — led to a $1.87 billion fourth-quarter loss.
If the deal goes through, WaMu will be one of the first retail banks to accept billions in outside funding, with hopes of distancing itself from the subprime crisis. So far, it has been mostly investment banks holding huge positions in bad mortgages that are roaming hat in hand.
Merrill Lynch & Co. announced in January it would take $6.6 billion from three foreign investment funds. Morgan Stanley sold a portion of itself to China Investment Corp., an investment arm of the Chinese government, for $5 billion in December. And in November, Citigroup Inc. took $7.5 billion from the Abu Dhabi Investment Authority in exchange for up to 4.9 percent of its equity.
Banks are also issuing new shares to boost capital. Last week, Lehman Brothers Holdings Inc. raised $4 billion in a stock offering and Swiss bank UBS AG announced plans to seek $15.1 billion.
Executives have said fallout from the mortgage crisis would continue to slam the company’s finances through 2008, and said up to $8 billion more will be needed this year to cover future loan losses.
As of Friday, WaMu’s stock had fallen another 25 percent in 2008. Cuts to its credit ratings erased a brief moment of investor optimism sparked by a positive comments from Chief Executive Kerry Killinger at a Wall Street conference in January.
At the time, Killinger said WaMu had enough cash and access to loans to get through the fiscal year.
Late last year, the thrift dismantled its subprime mortgage operation, closed more than half of its home loan centers and sales offices, shut down call centers and eliminated more than 3,000 jobs. It also shuttered WaMu Capital Corp. and stopped selling mortgage-backed securities.
The company slashed its dividend and raised $2.9 billion in a December stock offering. At the time, analysts said they did not believe that was enough to carry the thrift through the fiscal year.
Killinger’s $14.4 million in compensation last year, despite the huge losses and dividend cuts, has angered some shareholders.
CtW Investment Group, a part of the Change to Win federation of unions that advocates on behalf of workers’ investments in pension funds, has asked shareholders to oppose the re-election of two WaMu board members at the annual shareholder meeting on April 15.
The two, Mary Pugh, chair of WaMu’s finance committee, and James Stever, chair of its human resources committee, “bear responsibility for Washington Mutual’s failure to recognize and act in a timely manner on the risks to shareholder value presented by the housing bubble, and for attempting to insulate executive bonuses from the consequences of this risk management failure.”
Other proxy advisers have joined CtW’s campaign, including RiskMetrics Group’s ISS Governance Services, Glass Lewis & Co. and Egan Jones Proxy Services.