WaMu to raise $7 billion, signs agreement with TPG Capital

By Lisa Kerner

Charlotte, N.C., April 8 - Washington Mutual, Inc. said it entered into definitive agreements to raise $7 billion through the direct sale of equity securities to an investment vehicle managed by TPG Capital and to other investors including several of WaMu's top institutional shareholders.

TPG's investment vehicle will purchase $2 billion in newly issued WaMu securities, a WaMu news release stated.

WaMu sold 176 million shares of its common stock at a purchase price of $8.75 per share and issued approximately 55,000 shares of contingently convertible, perpetual non-cumulative preferred stock at a purchase price and liquidation preference of $100,000 per share.

The convertible preferred stock will automatically convert into WaMu's common stock at an initial exercise price of $8.75 per share, subject to adjustment, upon shareholder and certain other approvals.

Investors who agreed to transfer restrictions on their shares will receive warrants that will become exercisable for common stock based on a post-closing reference price. The warrants have a term of five years.

Goldman, Sachs & Co. and Lehman Brothers were placement agents.

Proceeds are expected to keep WaMu's capital ratios above targeted levels during a period of elevated credit costs in its loan portfolios in 2008 and 2009.

"With the support of these investors, we have every confidence in our ability to deal with today's market conditions and restore shareholder value," WaMu chairman and chief executive officer Kerry Killinger said in the release.

WaMu will call a special shareholders meeting to increase the number of common shares available for issuance and to approve conversion of the preferred stock into common stock.

In other business, WaMu said it will appoint TPG founding partner David Bonderman to its board of directors.

Larry Kellner, chairman and CEO of Continental Airlines and former executive vice president and chief financial officer of American Savings Bank, will become a board observer at TPG's request, WaMu said.

WaMu also announced the reduction of its quarterly dividend rate to $0.01 from $0.15 to preserve some $490 million of capital annually.

As part of its retail-focused strategy, WaMu plans to grow its retail bank branch and call center production. The company expects to close its freestanding home loan offices and exit wholesale lending by the end of the second quarter.

WaMu said preliminary results show the company will post a net loss of about $1.1 billion, or $1.40 per diluted share, for the first quarter of 2008. Full first-quarter earnings results will be released on April 15, the same date as WaMu's annual meeting.

TPG Capital is the buyout group of private investment firm TPG, with offices worldwide.

WaMu is a Seattle-based consumer and small business bank.

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