WaMu Surges on Report of $5 Billion Infusion

Private-equity firm TPG would receive common and preferred stock in the deal, which would shore up the struggling savings and loan.
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Updated from 3:11 p.m. EDT

Shares of

Washington Mutual

(WM) - Get Report

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

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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) - Get Report

, which last month agreed to buy collapsing investment bank

Bear Stearns

(BSC)

, 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) - Get Report

,

Morgan Stanley

(MS) - Get Report

and

Merrill Lynch

(MER)

looked to sovereign wealth funds for investments.

Financial guarantors like

MBIA

(MBI) - Get Report

and

Ambac Financial

(ABK)

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.