Running on WaMu
September 17, 2008 – 9:20 pmIt might not be accurate to say that Washington Mutual outlasted Lehman Brothers. It looks more like the bears have just temporarily changed their target. But with the feasting bears still savoring the taste of Lehman Brothers and WaMu dead on its heels, it is now its own depositors that pose the most immediate danger to the beast.
The queue to get into Washington Mutual’s large Santa Monica branch on Wilshire Boulevard started forming half an hour before the bank opened yesterday, writes Matthew Garrahan in Los Angeles. The anxious faces of those in the line highlighted the uncertainty now surrounding its future.
Washington Mutual has been beset by rumours it would be the next retail bank to fail following the collapse of California-based IndyMac earlier in the summer.
Indeed, without a move from the ever-intervening federal government, this bank might just be done by this weekend.
Federal regulators are desperately seeking buyers for hairball WaMu (WM), says the Post. The Feds have placed calls to Wells Fargo, JP Morgan, and HSBC, asking if the banks would be willing to step in.
We can answer the question for you, Uncle Sam. No, they won’t be willing to step in, and you’ll have to twist to their arm Bank-of-America-style for that. But things weren’t always so; back in April, JP Morgan and TPG both courted WaMu with Morgan seeing its higher bid rejected in favor of TPG’s familiarity. JP Morgan ended up winning after all while Washington Mutual shareholders simply got fleeced.
David Bonderman, a founder of TPG, gets a WaMu board seat as part of the deal. It is a homecoming of sorts because he served on WaMu’s board from 1997 to 2002. That was a result of his involvement with the Robert M. Bass Group, which purchased American Savings & Loan, an insolvent thrift, from the government in 1988. It became American Savings Bank and was sold to Washington Mutual for $1.2 billion in 1996, generating a plush profit to the sellers.
In April, WaMu said the TPG transaction would help the bank become profitable again. “With the support of these investors, we have every confidence in our ability to deal with today’s market conditions and restore shareholder value,” Mr. Killinger said.
TPG and its fellow investors got a sweet package. WaMu sold them 176 million shares at $8.75 each — 26 percent below the stock’s price the day of the deal; it also sold almost 20,000 preferred shares that can be converted into WaMu common stock at $8.75 each. WaMu issued five-year warrants to the investors, allowing them to acquire 68.2 million shares of WaMu stock at $10.06 each.
So a massively dilutive deal for shareholders brings an ex-privileged insider back home to play with his pals on the board. How nice! But the fun and games are over now that the shares they bought for $8.75 closed today at $2.01 per share. That sort of makes you wonder, between Killinger and Bonderman, who got who. Too bad so many shareholders so unarguably got the shaft.
Now Citigroup says they’ll only munch on Wa Mu after it rises from the dead.
Citigroup is also considering an offer, but would likely be able to buy Washington Mutual only if it emerged from a receivership, according to a person close to the situation. JPMorgan is maintaining its posture that it will not bid unless it receives government support, according to another person briefed on the matter
Maybe Citigroup hasn’t got the message. They’ll soon be dead too.
But don’t worry because it really doesn’t matter. When Washington Mutual announced a few days ago that it was well-capitalized, we knew right then that this was all she wrote.
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