Filed under: Deals, Private equity, JPMorgan Chase (JPM), Washington Mutual (WM), Housing
Washington Mutual (NYSE: WM) might be rescued from the situation that its low capital base threatens the company’s future. According to The Wall Street Journal, “private-equity firm TPG and other investors are close to a deal to invest $5 billion.”
Washington Mutual might have to take the money, but it is awful news for the value of the company’s shares. There had been rumors that JP Morgan (NYSE: JPM) might buy the company, but those will now end.
Since the bank’s current market cap is only $9 billion, the investment represents massive potential dilution. The company’s shares now trade at just over $10. On a straight dollar-for-dollar basis, the new capital would take the share price below $7, a 52-week low. Even if some of the money comes in as convertible preferred, the company’s shareholders are facing a capital table which will push shares down.
The news is another example of investors losing three quarters of their money in a financial company due to the subprime crisis and then losing more when a private equity company or sovereign fund offers new capital. It is better than Chapter 11 though.
Douglas A. McIntyre is an editor at 247wallst.com.
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