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Washington Mutual raises $7 billion

The Baltimore Sun

SEATTLE -- Washington Mutual Inc. heaped more bad news on its beleaguered employees and shareholders yesterday, announcing thousands more layoffs, a capital-infusion deal that sent the stock price tumbling, another dividend reduction, and first-quarter results that will be worse than the already low expectations.

The slim piece of good news was that the nation's largest savings and loan found investors willing to put $7 billion worth of new capital into the company. That infusion is designed to help Washington Mutual weather the storm of delinquent and defaulted loans that threatens to spread from subprime lending to conventional home loans, home equity lines of credit and credit cards.

"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 Chief Executive Officer Kerry K. Killinger in a statement.

But the announcements also raised more questions about the bank, including whether credit problems are getting worse and whether this deal is an interim measure to prepare Washington Mutual for a sale.

"I think mixed emotions is the appropriate sentiment to have," said James Bradshaw, banking analyst with D.A. Davidson & Co. in Lake Oswego, Ore.

Investors were not thrilled with the news. Washington Mutual closed at $11.81 yesterday, down $1.34 a share.

Among the announcements:

WaMu sold 176 million shares of common stock at $8.75 a share to an investment group headed by TPG Capital. (Other current shareholders are also participating.) It also issued 55,000 shares of preferred stock at $100,000 each. Once shareholders approve an increase in the number of common shares those preferred shares will convert to about 630 million shares of common stock, also valued at $8.75 each. TPG founding partner David Bonderman, who once served on Washington Mutual's board, returns as a director.

The quarterly common-stock dividend, which had been cut from 56 cents per share to 15 cents in December, was sliced further, to 1 cent a share.

The bank plans to close all 186 of its freestanding home-loan offices, which will mean laying off 3,000 employees. That comes on top of nearly 3,300 job cuts announced in December. It also plans to end wholesale lending, meaning loans produced through brokers.

First-quarter earnings results will be released next week, but the company said yesterday that the quarterly loss will be $1.1 billion, or $1.40 a share. That means two billion-dollar-loss quarters in a row. Washington Mutual will set aside $3.5 billion for loan losses - much larger than earlier projections of $1.8 billion to $2 billion per quarter - and write off $1.4 billion in loans, compared with $747 million in the fourth quarter of last year.

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