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Washington Mutual Preps Itself for Sale

Updated from Thursday, Sept. 18

Citigroup (C - Get Report) is considering making a bid for Washington Mutual (WM - Get Report), the Wall Street Journal reports, citing people familiar with the situation.

Other interested parties include Banco Santander (STD), and Wells Fargo (WFC). JPMorgan Chase (JPM - Get Report) is biding its time on a potential bid, the Journal reported Friday.

It isn't certain that Citigroup will make a bid for WaMu, but the mortgage lender's fate could be decided in the next several days, according to people familiar with the discussions, the Journal reports.

Published reports and a regulatory filing on Wednesday suggested Washington Mutual is taking steps to prepare itself for a sale.

The ailing Seattle thrift has hired Goldman Sachs (GS) to begin an auction, several media reports including The New York Times reported.

The news comes the same day as a Securities and Exchange Commission filing Wednesday that says private equity firm TPG, which led the $7.2 billion capital injection involving several other investors this spring, has decided to waive certain rights in its $2 billion investment in the Seattle-based thrift. TPG's original agreement require WaMu to pay the firm back for any significant dilution it would feel if the company decided to raise more capital or sell itself, according to the SEC filing.

As part of the original agreement, if within the first 18 months after the deal was completed WaMu were to sell more than $500 million of common stock for less than $8.75 a share -- the amount TPG paid for its investment -- or if there was a "change in control" where the stock was valued at less than $8.75 a share, WaMu would be required to pay TPG "an amount sufficient to compensate them for the dilution suffered."

"It became clear that it would be in the best interests of Washington Mutual and our investors to waive the price reset payment provisions that were agreed to with the bank at the time of our original investment in April 2008," TPG said in a statement. "Our goal is to maximize the bank's flexibility in this difficult market environment."

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