WaMu Surges on Report of $5 Billion Infusion

Updated from 3:11 p.m. EDT

Shares of Washington Mutual(WM Quote - Cramer on WM - Stock Picks) surged more than 36% after the nation's largest thrift was rumored to be in talks with private-equity firm TPG and other investors about a $5 billion equity infusion.

The The Wall Street Journal reported on Monday, citing people familiar with the matter, that the investment would be structured as both a common and preferred stock offering, but little detail was given as to the terms of the deal. Still, the preferred shares would be convertible to common stock, subject to a shareholder vote, the Journal said. TPG's full stake in WaMu is expected to remain under 25%, the paper said.

CEO Kerry Killinger likely will remain in place as part of the deal, the paper reported.

Shares, which hit a high of $13.90 in the afternoon, closed up $2.98, or 29.3%, to $13.15. Volume was more than triple its average daily trading volume, according to Yahoo! Finance.

Spokespeople for Washington Mutual and TPG declined to comment on the Journal's article.

Cramer: WaMu Deal Takes Hazard Off the Table

WaMu, which delved heavily into subprime mortgages during the housing boom, has been hit hard in the downturn. The bank had been rumored to be looking to raise capital or find a buyer. JPMorgan Chase(JPM Quote - Cramer on JPM - Stock Picks), which last month agreed to buy collapsing investment bank Bear Stearns(BSC Quote - Cramer on BSC - Stock Picks), was one of the rumored suitors.

Shares of WaMu have lost more than 70% from a year earlier, while its market cap has been crushed as a result of the housing slump and mortgage crisis.

The Journal article said that the JPMorgan Chase and WaMu were indeed in discussions about a possible transaction, but that talks came to a halt through last week.

JPMorgan's Bear deal was one of several in the financial sector that have come as banks, brokerages and other companies look to beef up capital reserves in the face of the lingering credit crunch. Citigroup(C Quote - Cramer on C - Stock Picks), Morgan Stanley(MS Quote - Cramer on MS - Stock Picks) and Merrill Lynch(MER Quote - Cramer on MER - Stock Picks) looked to sovereign wealth funds for investments.

Financial guarantors like MBIA(MBI Quote - Cramer on MBI - Stock Picks) and Ambac Financial(ABK Quote - Cramer on ABK - Stock Picks) raised money from private equity and through stock offerings.

TPG, a Ft. Worth, Texas-based private equity firm, has roughly $30 billion in capital under management through a family of funds. The firm's offerings include private equity, venture capital and public equity and debt investing funds, according to its Web site. TPG typically looks to invest in businesses that require equity capital between $100 million and $750 million, the company says.

Richard Clayton, the director of research at CtW Investment Group, says the need for a capital injection by WaMu is "indicative of the severity of the past year." WaMu in December cut its dividend and raised $2.9 billion in a preferred stock offering. The TPG investment reinforces arguments CtW has been making about risk management failures, Clayton says.

"I think it's unfortunate for WaMu shareholders that they have to suffer further dilution," he says. "We certainly hope that this is the last sort of infusion that the company will need."

CtW works with pension funds associated with Change to Win, a federation of unions representing nearly six million workers in the U.S. The pension funds own approximately 4.6 million shares of WaMu's common stock.

CtW has been vocal in seeking change on WaMu's board of directors. The group has also been active in lobbying against several directors at Morgan Stanley and other financial companies.