WaMu Slides on Terms of $7 Billion Infusion

The company plans at the same time to expand its strong retail banking franchise, it says.

"We're very pleased that TPG and these major investors have expressed their confidence in WaMu's underlying value and its growth potential," WaMu CEO Kerry Killinger said in a statement. "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. With the support of these investors, we have every confidence in our ability to deal with today's market conditions and restore shareholder value."

WaMu expects to post a net loss of $1.1 billion, or $1.40 a share, according to preliminary results for the first quarter, it said. Analysts on average were expecting the thrift to post a loss of 49 cents a share, according to Thomson Financial.

It also recorded a $3.5 billion provision for loan losses - more than twice the provision it took in the fourth quarter. It expects charged off loans to total $1.4 billion in the first quarter.

On the other hand, the company said its net interest margin -- the profit a bank makes from taking in deposits and lending them out again -- increased by 19 basis points from the fourth quarter to 3.05% reflecting "significantly lower wholesale borrowing costs" following the 200 basis point reduction in the federal funds rate.

WaMu will report its full first quarter earnings on April 15.

As a result of the mortgage downturn, WaMu in December cut its dividend and raised $2.9 billion in a preferred stock offering. At the same time, the thrift had downsized its home loans business by cutting around 3,000 employees and shutting more than half of its home lending centers. At the time, it had ceased offering subprime mortgages.

WaMu said Tuesday it plans to expand its retail banking network by focusing on growing its branches and call centers and shuttering the rest of its freestanding home loan offices. The company is also exiting the wholesale lending business. WaMu said the closings should be finished by the end of June.

TPG was founded in 1992 by David Bonderman and has more than $50 billion in assets under management, it says. The company declined to comment further on the WaMu investment, according to an outside spokesman.

Bonderman already has a history with the Seattle thrift. He was previously on WaMu's board in the late 1990s and early part of this decade after WaMu purchased American Savings Bank, where Bonderman was a director, according to the Wall Street Journal.

This is also not the first time that Bonderman has come to banks' rescue. While working for Texas billionaire Robert Bass, he put together one of the largest bail out packages for American Savings Bank during the savings-and-loan crisis roughly 20 years ago through a capital injection, the Journal says.

WaMu's board intends to re-appoint Bonderman to the board. In addition, Larry Kellner, the chairman and CEO of Continental Airlines(CAL - Cramer's Take - Stockpickr) and a former executive of American Savings Bank, will become a "board observer" at TPG's request, WaMu said.