Washington Mutual to Get $5 Billion from TPG

Washington Mutual is big in the US mortgage game, and naturally, it is in some trouble. Fort Worth, Texas-based TPG, Inc. (formerly the Texas Pacific Group) has agreed to put $5 billion into WaMu. The question is whether this will be enough to right Washington Mutual’s ship or whether there is more bad news ahead.

The Wall Street Journal said that TPG would get common and preferred stock and a seat on the WaMu board. Neither side is saying anything yet, which suggests the deal isn’t quite finished. JP MorganChase had looked at a stake in WaMu and walked away last week, so the bank is reluctant to say anything.

WaMu needs the capital infusion. The markets are exceedingly nervous, and any suspicion that things aren’t all right will undermine the future of any bank. Having cut its dividend by almost three-quarters and selling $3.9 billion in preferred shares already, the bank has been working to put itself on a better footing.

As a private equity fund, TPG is seen as smart money. For much of this year, private equity has been sitting back and watching. A large portion of money in many of these funds is in cash. When the right opportunity arises, they move quickly. This is what the WaMu deal seems to represent.

This journal has said that markets run on greed and fear. The fear is obvious to anyone reading the business section. Now that some money is moving back into stocks, greed is returning. It is too early to say whether the market has bottomed out, especially in the financial sector, but the bottom may be visible from here.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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