TPG-led group to inject $7bn into WaMu

TPG co-founder David Bonderman will rejoin the troubled Seattle-based savings and loan.

An investor group anchored by TPG has agreed to inject $7 billion (€4.5 billion) in beleaguered US banking giant Washington Mutual, with TPG agreeing to purchase a $2 billion stake in the Seattle-based savings and loan.

WaMu, battered by the subprime mortgage and credit crises, will sell 176 million shares of its common stock at $8.76 per share to a TPG-led consortium, pending shareholder approval next week.
As a condition of the transaction, TPG co-founder David Bonderman will rejoin WaMu’s board of directors after serving there from 1996 to 2002. At TPG’s request, Larry Kellner, chairman and chief executive officer of Continental Airlines, will become a board observer.

WaMu has reported a net loss of approximately $1.1 billion for the first quarter of 2008. In an effort to preserve its declining capital pool, the bank will reduce its quarterly dividend from $0.15 per share to $0.01 per share.

WaMu will also close all of its freestanding home loan offices and exit wholesale lending entirely after reporting a $3.5 billion loss in loans.

A spokesman for Fort Worth-based TPG declined to comment on the deal.

TPG’s bailout is the latest example of private equity firms extending rescue capital to troubled banks and financial companies – a long-standing industry trend.

Since December, Warburg Pincus has twice bailed out bond insurer MBIA Insurance to the tune of $800 million. In March, WL Ross invested $250 million in Assured Guaranty, another bond giant looking to avoid ratings downgrades, and committed to purchase an additional $750 million in Assured shares.

Last November, Boston-based buyout firm JC Flowers bought a 32.6 percent stake in Japanese bank Shinsei, the largest ever such deal in the Japanese banking industry. That was the second time the private equity firm rescued Shinsei, the first being post-Asian financial crisis when it teamed in 2000 with Ripplewood Holdings to acquire the bank for $1.2 billion.

Shinsei’s subsequent restructuring resulted in a 2004 public float and is generally viewed as one of the most lucrative private equity deals ever – Ripplewood and Flowers raked in some ¥2.2 billion in advisory fees immediately after the transaction, made $2.1 billion in profits from the bank’s IPO, and later earned $2.8 billion when they sold a one third stake in the bank.

WaMu’s shares rose nearly 17 percent this morning on news of the bailout, raising its total market capitalisation to $10.45 billion. The current share price of $11.84 is down 73 percent from the bank’s 52-week high of $44.66.

TPG’s current fund, TPG Partners VI, closed on $15 billion; its seventh fund is targeting $18 billion.