Washington Mutual said today it has agreed to receive a $7 billion investment from TPG Capital and other investors, bolstering its capital base.

Terms call for Fort Worth, Texas-based TPG to acquire 176 million shares of common stock at $8.75 per share. In addition, the company issued 55,000 shares of convertible, preferred stock which will convert into common stock at $8.75 per share.

“This substantial new capital, along with the other steps we are announcing today, will position us for a return to profitability as these elevated credit costs subside,” said Kerry Killinger, chairman and chief executive of WaMu, in a press release.
TPG officials were unavailable to comment.

WaMu manages 2,500 consumer and small business banking stores across the US.
The Seattle bank announced the new deal amidst disclosing a first-quarter loss of $1.1 billion, or $1.40 per diluted share. Additionally, it plans to reduce its quarterly dividend to one cent from 15 cents in order to save $490 million annually.
TPG chieftain David Bonderman will join WaMu’s director board.

WaMu reported that its total deposits for the first quarter amounted to $6 billion, which includes an $8 billion increase in retail deposits. The bank also reported a 15% increase in its total non-interest income to $1.6 billion from the previous quarter.

The new equity infusion, which is a minority stake investment, helps reduce the probability of default, according to Bank of America, which issued a brief report about the deal on Tuesday. BofA analyst Jeffrey Rosenberg said the deal had further implications for the financial sector: “WaMu’s price action today suggests that financials have well exceeded their 'optimal' leverage point and that issuance of dilutive equity can actually raise stock prices.”

The financial infusion follows WaMu’s management decision to refined focus on its core retail operations as it pared down home lending. In addition, the Washington bank said plans to invest more capital into expanding its retail bank network, as well as call center capabilities. It also will close its freestanding home loan locations and exits the wholesale lending business.

WaMu’s shares declined 2.6% to $12.80 per share on Tuesday on the New York Stock Exchange, compared with Monday’s close of $13.15 a share.
The bank, which held $327.91 billion of assets through Dec. 31, 2007, plans to hold its annual shareholder meeting on April 15. It will hold a conference call the following day to discuss its first quarter results.

Goldman Sachs and Lehman Brothers served as placement agents on behalf of WaMu, while Simpson Thacher & Bartlett was its counsel. Credit Suisse provided financial advice to TPG, while Cleary Gottlieb Steen & Hamilton was counsel to TPG.

In a separate deal also announced on Tuesday, TPG said it had invested $800 million in Russian pharmaceutical distributor SIA International for $800 million, marking Russia’s largest private equity deal in history. The Texas firm’s investment will give it a 50% stake in a company that supplies drugs to 30,000 Russian pharmacies and hospitals on a daily or weekly basis from 41 regional subsidiaries.



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