WaMu Soars on Rumors of $5 Billion Investment

Washington Mutual Inc. (WM: 32.30 +0.40%) is nearing a deal for $5 billion in investment from the likes of private-equity titan TPG, according to a report published Monday in the Wall Street Journal. Shares of the Seattle-based bank soared on the news, jumping up nearly 35 percent in heavy trading Monday morning.

From the WSJ:

TPG’s effort could be viewed as an encouraging sign for the nation’s ailing banking system, and Wall Street will be watching to see whether it is an indication that the worst is over …

While banking regulators were likely apprised of WaMu’s plans, the government was not directly involved in forging a deal as in the recent purchase of Bear Stearns Cos., say people familiar with the matter.

As currently envisioned, the $5 billion investment would be structured as both a common- and preferred-stock offering.

WaMu has been hit hard as the mortgage crisis has continued unabated, and $1.84 billion loss for the fourth quarter in January due largely to increasing loan loss reserves.

The bank’s portfolio includes $57 billion in option ARM mortgages; so-called negative amortization loans have been a fast-increasing source of losses for lenders as housing prices have fallen in key markets throughout the United States and put millions of borrowers in the position of owing more on their mortgage than their home is worth.

The plans at WaMu would likely eliminate any consideration that the Seattle-based based would be acquired by a larger financial institution, the WSJ reported. TPG would also likely receive a seat on the company’s 14-member board.

HW had reported on market rumors that Wall Street bank JP Morgan Chase was looking at a potential purchase of Washington Mutual in January.

WaMu has not commented to the press on the report, and did not return a phone call from Housing Wire seeking comment by the time this story was published.

Disclosure: The author held no positions in WM when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.