WaMu Nabs Providian

The Seattle mortgage giant will pay about $6.45 billion.
Publish date:

Updated from 8:44 a.m. EDT

West Coast mortgage giant

Washington Mutual

(WM) - Get Report

agreed to acquire



, a major independent credit-card issuer, for cash and stock worth $6.45 billion.

Providian shareholders will get $18.71 a share based on prices Friday, when Providian closed at $17.96 and Washington Mutual ended at $41.57. The acquisition formula calls for WaMu to issue 89% stock and pay 11% cash in the purchase, the companies said in a press release Monday.

The takeout price is just above Providian's 52-week high of $18.27 and follows a steady, two-year rise from around $10 for the stock. Providian tumbled from around $60 in late 2001 on a host of bad debt concerns.

The shares added 9 cents to $18.05 Monday.

For Seattle-based WaMu, the deal is a move to diversify its business and move away from a reliance on mortgage banking to power its earnings. The slowdown in the refinancing market, coupled with a problems in WaMu's hedging strategy, have pummeled earnings the past several quarters.

The deal will probably fuel speculation about other bank/credit card combinations. In recent weeks, there's been talk about



, the nation's largest independent card firm, being acquired. It also could whet investors' appetite for

Morgan Stanley's


planned spinoff later this year of its


card business.

Card companies have found it increasingly difficult to survive as stand-alone businesses. Earlier this year,

Capital One

(COF) - Get Report

, a big Virginia card company that spends heavily on advertising, announced a deal to acquire



, a New Orleans-based regional lender, for $5.3 billion.

American Express

(AXP) - Get Report

, the card company that's a favorite of corporate America and the traveling elite, is the most notable exception to the trend.

Providian has about 10 million credit card accounts, mostly Visas. It earned $381 million on sales of $2.6 billion last year. WaMu, which operates about 2,500 bank branches and mortgage offices, earned $2.9 billion on sales of $16 billion in 2004.

Joseph Saunders, Providian's CEO, will continue heading the credit-card unit, reporting to WaMu president Steve Rotella.

"Today's transaction enhances Washington Mutual's consumer banking growth while strengthening our leadership position in the middle-market customer segment," WaMu said. "Providian is a highly profitable business with solid credit quality. Its focus on middle market consumers makes Providian a natural fit for our business and a winning combination for both companies' customers."

Washington Mutual, based in Seattle, expects the transaction to add to its earnings during the first year after it is completed, probably in the fourth quarter.