SEATTLE (AP) — Washington Mutual Inc. secured $7 billion in new capital yesterday, an injection that is aimed at reviving the company despite ballooning loan losses but which may also push it to rethink its strategy, slim down and revamp the management.
The country’s largest savings and loan has been badly hurt by rising delinquencies and defaults on mortgages, and efforts last year to rehabilitate its finances fell short despite assurances from management that slashing its dividend, raising nearly $3 billion in a stock sale and leaving the subprime mortgage business would be sufficient.
Washington Mutual said it would get the new capital from an investment group led by private equity group TPG, but will cut its dividend again and post both a wider loss and set aside more in loan loss provisions for the first quarter than had been expected. TPG founding partner David Bonderman, a former WaMu director, will also rejoin the board.
Separately, the thrift said it will get out of the wholesale lending business, close all remaining standalone home loan centers and lay off about 3,000 workers.
WaMu joins a long list of companies that have raised capital in the wake of problems in the mortgage market, including Countrywide Financial Corp., Thornburg Mortgage Inc., Merrill Lynch & Co., Morgan Stanley and Citigroup Inc.
“I think it’s enough capital to get them all the way through,” said D.A. Davidson & Co. analyst Jim Bradshaw, who said he expects the company to increase the amount it sets aside for delinquencies and mortgage defaults this year to as much as $12 billion from an earlier forecast of $8 billion.
One wild card remaining is whether “Alt-A mortgages,” or loans made to people with minor credit problems or who lack documentation for traditional loans, will crumble as spectacularly as the subprime sector did. The Alt-A loans fall between subprime and prime loans in terms of default risk.
In any case, WaMu is unlikely to emerge from the turmoil in the housing and credit markets unchanged, Mr. Bradshaw said.
“I suspect the company is going to be smaller a year from now, maybe dramatically smaller,” he said. Other retail banks, such as Bank of America or Wells Fargo, might also raise cash, but for a different reason — to snap up assets that Washington Mutual can no longer afford to buy, he said.
WaMu said yesterday it will set aside $3.5 billion to cover loan losses in the first quarter — $1.5 billion more than previously expected — and expects to lose $1.1 billion for the period. Wall Street had forecast a loss of $344.3 million, according to a Thomson Financial survey.
To further shore up its capital position, WaMu will also cut its quarterly dividend to 1 cent from 15 cents, saving about $490 million a year.
Shares of Washington Mutual, which had soared more than 29 percent Monday on news that a capital deal was near, fell $1.31, or 10 percent, to $11.84.
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