Posted on Tue, Apr. 8, 2008
NEW YORK - Investors are hoping that a possible $5 billion cash deal for Washington Mutual Inc. and other recent financing moves are signals that credit is finally loosening up again.
Since last summer, borrowed money has been hard to come by because lenders, worried about defaulting home loans, have turned down the spigot for many types of loans.
But what looks like easing credit may just be vulture investors picking over the wounded among the nation's big corporate names.
Major financial institutions in need of quick cash, such as Citigroup Inc. and Merrill Lynch & Co. Inc., have sold big stakes in their companies to private-equity firms and funds controlled by foreign governments. These funds are also sinking cash into other troubled industries such as retailing.
For these investors, such deals are too good to pass up. If the WaMu deal is completed, for example, TPG Capital - the Fort Worth, Texas, buyout shop - would get a big stake in the largest U.S. savings and loan at a time when its shares are trading at the lowest since late 1995. They closed yesterday at $13.15, up $2.98, or 29.3 percent.
Though a deal has not been announced, reports on Wall Street indicated TPG would receive a mix of common and preferred stock totaling about 25 percent of WaMu's outstanding shares. TPG, formerly Texas Pacific Group, would get a seat on WaMu's board.
Shares of WaMu, of Seattle, have come under heavy fire as problems in the housing and credit markets have deepened. WaMu's stock shed nearly 70 percent last year, and the sinking value of WaMu's mortgage portfolio and soaring loan-loss provisions - the amount it socks away to cover bad loans - led to a $1.87 billion fourth-quarter loss.
This kind of deal would have been hard to approve during the stock's peak without drawing the ire of shareholders, whose investments would be diluted in the stock offering to TPG. Though the big private-equity-backed acquisitions of 2007 have dried up, the recent capital infusions indicate they are still active when the right opportunity comes along.
