WaMu gets $7b from equity group

Rescue comes as thrift posts $1.1b loss in 1st quarter

Washington Mutual Inc., the largest US savings and loan, got $7 billion from a group of investors led by David Bonderman's TPG Inc. after losses on subprime loans ate up capital and erased 74 percent of its market value.

Washington Mutual sold 176 million shares at $8.75 a piece, 33 percent below Monday's closing price on the New York Stock Exchange, and $5.5 billion in convertible preferred shares, the company said in a statement yesterday. TPG will buy $2 billion of the shares. The lender also slashed its dividend and announced 3,000 job cuts.

Chief executive Kerry Killinger, struggling to reassure investors the bank has enough capital to stay afloat, said the dividend cut will preserve $490 million annually. Seattle-based Washington Mutual, which said yesterday it lost $1.1 billion in the first quarter, will stop lending through mortgage brokers and close 186 home-lending offices. The thrift will instead focus on its 2,500 bank and small-business-lending offices

"The question is whether this is enough to stop the bleeding," said Matthew Paschke, a portfolio manager at Leuthold Weeden Capital Management in Minneapolis. "It's a high-risk bet."

Washington Mutual fell $1.34, or 10 percent, to $11.81 a share at 4 p.m. in New York Stock Exchange composite trading.

The new stock means earnings per share may drop by half, Merrill Lynch & Co. analyst Kenneth Bruce wrote in a research note yesterday.

Washington Mutual sold a total of 804.6 million shares in the deal, including the convertibles, Washington Mutual spokesman Derek Aney said in an e-mail. The lender is also selling an undisclosed number of warrants, according to the statement.

"When a firm has to double its shares outstanding and yet still be under credit-quality pressure, it's not a particularly comforting move," said Sean Egan, managing director of Egan- Jones Rating Co. in Haverford, Pa.

Banks and securities firms including Citigroup Inc. and Lehman Brothers Holdings Inc. have raised $136 billion of capital after more than $232 billion of losses tied to subprime mortgages, according to data compiled by Bloomberg.

Bonderman, 65, TPG's founding partner, will join the board. Larry Kellner, CEO of Continental Airlines and former chief financial officer of American Savings Bank, will be an observer at TPG's request. Bonderman declined to comment through a spokesman, Owen Blicksilver.