Contested WaMu share sale to TPG losing value

Washington Mutual’s (WaMu) financial affairs are not in a healthy state, in spite of the highly controversial injection of $7 billion in April through the sale of a 13% stake to a financial group lead by TPG Inc.

Shares for the savings and loans bank have plummeted in recent months, now at a low not seen since 1991.

When the deal was struck three months ago, WaMu’s shares were selling for $13.15, though the price for TPG was lowered by 33% as a part of the agreement, to $8.75.

Since then, WaMu’s stocks have slumped down a further 35% to close yesterday at $3.23, which is a loss of 63% of TPG’s initial investment. TPG still have the option to buy a further 57.1 million shares in WaMu at $10.06 per share. This time last year, WaMu’s shares where trading for $42.63 each, that is an overall reduction of 92% per share.

This has led WaMu to reduce their quarterly dividend from 0.56 cents to 0.15 cents in December, then down to 0.01 cent per share in April.

WaMu was in desperate need of more capital when they made the deal with TPG, as the continued losses from their loan portfolio had substantially reduced the bank’s financial base.

Fortunately for WaMu, in spite of outrage at the terms of the deal and some requests for Kerry Killinger to step down as CEO as well as having been removed as Chairman. Shareholders did ultimately vote 95% for the sale, though this meant the dilution of their shares fell by nearly 50%.

Without those votes, the sale could not have gone ahead due to rules enforced by the New York Stock Exchange, as shareholders needed to agree to the amount of preferred stock to be sold and converted into common stock.

According to some from within the bank, shareholders’ feelings of frustration have been somewhat salved by troubles now being faced by those who bought the sale price WaMu stock.

There has been some good news for the bank, however, with their share price increasing 12% to $3.61.

A statement issued this week by WaMu announced that they now have over $40 billion in liquidated assets as well as retail deposits totalling $150 billion throughout the bank’s 2,500 branches which gives them a solid base, capital wise.

Next week, WaMu is expected to announce their figures for the second quarter, and after losing $3 billion in the last two quarters, analysts have stated that the bank is likely to announce a loss of $1.2 billion.

Lehman Brothers Holdings Inc. analysts’ said that if WaMu comes out of the credit and housing market crises in tact, they will be looking at a total loss of $26 billion.

When asked to comment on the suggested losses the company is facing, Killinger stated there would be no point and said that the actual figures would be released within the next few weeks.

Killinger went on to say that the managing body of the bank is doing everything they can to ensure WaMu’s future. Unfortunately for WaMu employees, that included firing 1,200 staff members.

The bad news doesn’t stop there, as banking analysts are saying that the $7 billion deal with TPG will not be enough to secure the defaulted loans WaMu currently have as well as those they will have in the near future.

If WaMu does seek more capital it will come at great cost, as they will have to reimburse TPG for any shares sold for less than $8, which will also result in further dilution of investors’ current stakes.

Shareholders and analysts have been quite vocal about suggesting the JPMorgan Chase buyout offered earlier this year would have been the better option, as WaMu isn’t out of the woods yet and could still end up being sold to another banking group at fire-sale prices.

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