A rescue for Washington Mutual (WM)

Posted Apr 7th 2008 8:45AM by Douglas McIntyre
Filed under: Deals, Private Equity, JPMorgan Chase (JPM), Washington Mutual (WM), Housing

Washington Mutual (NYSE: WM) may be rescued from the situation that its low capital base threatens the company's future. According to The Wall Street Journal, "private-equity firm TPG and other investors are close to a deal to invest $5 billion."

Washington Mutual may have to take the money, but it is awful news for the value of the company's shares. There had been rumors that JP Morgan (NYSE: JPM) might buy the company, but those will now end.

Since the bank's current market cap is only $9 billion, the investment represents huge potential dilution. The company's shares now trade at just over $10. On a straight dollar-for-dollar basis, the new capital would take the share price below $7, a 52-week low. Even if some of the money comes in as convertible preferred, the company's shareholders are facing a capital table which will push shares down.

The news is another example of investors losing three quarters of their money in a financial company due to the subprime crisis and then losing more when a private equity company or sovereign fund offers new capital. It is better than Chapter 11 though.

Douglas A. McIntyre is an editor at 247wallst.com.

Tags: housing market, HousingMarket, inthenews, JPM, private equity, PrivateEquity, subprime, tpg, WM

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Reader Comments (Page 1 of 1)

4-07-2008 @ 8:54AM

Dan Barnett said...

But Mr. McIntyre, at 8:10 this morning you report the stock up 20%?

4-07-2008 @ 9:26AM

bob said...

you are a stone liar

4-07-2008 @ 9:27AM

doug mcintyre said...

Let's see what happens when the details of the package hit

4-07-2008 @ 9:44AM

B. Harrison said...

And this is just the beginning of the dilution reduction of the value of the American people's value of their stock holdings and the further devaluation of the U.S. dollar which has already been devalued by approximately 50% since George Bush became President. On the world currency markets, a $1 MILLION dollars from the year 2000 is now worth about $500K anyway that you look at it.

4-07-2008 @ 9:53AM

B. Harrison said...

The critical question is "How low will it go" . . . and what is going to happen to all of the retirees who depend on the investment interests as their sole source of income? If the retirees are too old or too sick to work, how will they subsist pn substantially reduced incomes? Ae they going to wind up "destitute and out on the streets"?

4-08-2008 @ 9:33AM