WaMu, as expected, announced a deal that would allow it to bolster its capital levels and remain independent and under the direction of Chief Executive Kerry Killinger, at least for the foreseeable future.
The $7 billion raised by WaMu includes $1.54 billion from selling common shares and $5.5 billion from selling convertible preferred shares. TPG bought $2 billion of the preferred shares. And WaMu said that other buyers included some ''top institutional shareholders'' in the bank. It didn't identify them. Several value-style mutual funds, believing the bank's shares were attractively undervalued, have amassed large holdings of WaMu as its stock has tanked in the past six months.
About half of the top 10 shareholders participated, according to a person familiar with the situation. London-based Toscafund Asset Management LLP, a major shareholder that had been agitating to be part of any recapitalization, said it was a ''significant investor'' in the new shares.
WaMu's capital raising is one of the most punitive since the credit crunch began. It could result in the company nearly doubling its shares outstanding, a massive dilution for existing shareholders. Through the offering of common and preferred shares, WaMu is effectively issuing 804 million new shares, estimates Gary Gordon, analyst at Portales Partners. At the end of last year, WaMu had about 866 million shares outstanding.
So unless investors belong to the select group invited to participate, they will own about half as much of the company as before. WaMu fell $1.34, or 10 percent, to $11.81 in 4 p.m. New York Stock Exchange composite trading Tuesday.
WaMu, the largest U.S. savings-and-loan institution, has been battered by the housing crisis and has already taken steps to bolster its capital by cutting its dividend, slashing jobs and selling $3.7 billion in preferred shares. The company said in a statement Tuesday that it was cutting its dividend again to a penny a share from 15 cents.
One possible motivation for quickly raising a large amount of capital, according to analysts, was the fear that WaMu's credit rating could be downgraded to below investment grade, or ''junk,'' which would have made it much harder for the bank to borrow money to fund its operations. The deal also should help WaMu satisfy regulators that in spite of mounting losses and write-downs, the company has enough capital to be considered healthy.
WaMu's deal may become the benchmark for other banks that are seeking capital infusions, a source of potential pain for investors.
Cleveland's National City Corp. has said it is out shopping for an infusion, and there is a growing belief that many small and midsize banks are looking for capital to get them through the crunch.
