Another lifeline for a bank: WaMu may get $5-billion infusion
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Smart money -- or good money after bad?
A rumored $5-billion capital infusion for struggling lender Washington Mutual Inc. would fit the pattern of the last five months, which have seen some big-name investors step up to bolster the finances of capital-needy banks and brokerages including Citigroup Inc., Merrill Lynch & Co. and UBS.
If WaMu gets $5 billion, it would bring to $140 billion the total raised by banks and brokerages since the mortgage massacre began last fall, according to a tally by Bloomberg News. That total excludes what Bank of America Corp. is paying for Countrywide Financial Corp. and what JPMorgan Chase & Co. is paying for Bear Stearns Cos.
The new capital for WaMu would be provided by a group led by private-equity firm TPG Inc., the Wall Street Journal reported today. Seattle-based WaMu and Fort Worth-based TPG declined to comment.
Middle Eastern and Asian sovereign wealth funds have led the surge in investment in U.S. and European banks and brokerages in recent months. Whether any of these investments will pay off in the long run remains a big debate on Wall Street. But for the moment the investors’ willingness to write checks means fewer potential financial-company casualties for the Federal Reserve, the U.S. Treasury and European bank regulators to deal with.
In the meantime, the rumored infusion for WaMu clearly caught some ‘short sellers’ flatfooted: The number of shorted WaMu shares -- that is, stock borrowed and sold, in a bet on lower prices -- totaled 163 million as of March 31, up from 91 million in mid-December.
Some of those short sellers undoubtedly bought to close out their bets today, helping to drive the stock up $2.98, or 29%, to $13.15. The price was $39 a year ago.
An infusion of money by TPG would lower the risk that WaMu might fail if losses on defaulted mortgages continue to soar. But current WaMu shareholders stand to have their ownership in the thrift diluted if the deal goes through.
Photo: JB Reed/Bloomberg News