TPG Waves Dilution Rights with WaMu

NEW YORK (Reuters) – A major Washington Mutual Inc investor has waived an agreement that restricted the largest U.S. savings and loan from raising capital, a move that reflects the financial difficulties of the Seattle-based thrift.

TPG Inc, a private equity firm led by David Bonderman, had invested $2 billion earlier this year as part of a $7 billion capital raising by Washington Mutual, which has been battered by mortgage losses.

According to a U.S. Securities and Exchange Commission filing, TPG agreed to waive a provision requiring Washington Mutual to make up any dilution if the thrift raised capital at less than $8.75 per share, about what TPG paid for its stake.

The provision would have kicked in had Washington Mutual raised more than $500 million of equity for less than $8.75 per share, or sold itself for less than that price.

Washington Mutual spokesman Brad Russell declined immediate comment. TPG did not immediately return a call for comment.

Shares of Washington Mutual sank as low as $1.50 on Tuesday after its credit ratings were cut to junk status by Moody’s Investors Service and Standard & Poor’s, and following the bankruptcy of Lehman Brothers Holdings Inc.

While the thrift ended August with about $143 billion of retail deposits, investors are worried about its ability to cover credit problems in its mortgage business, which have led to $6.3 billion of overall losses in the last three quarters.

Many analysts have said Washington Mutual may be sold to JPMorgan Chase & Co or another buyer once there is greater clarity about its mortgage losses, which the thrift has said could reach $19 billion through 2011.

Last week, the thrift said it expects to set aside $4.5 billion for credit losses in the third quarter, down from the second quarter’s $5.9 billion.

In afternoon trading, Washington Mutual shares were down 12 cents at $2.24 on the New York Stock Exchange. Their 52-week high is $39.25, set last Sept 19.

By Jonathan Stempel
(Editing by Gerald E. McCormick)