Don't Bite The Hand That Feeds You

[langlui]

WaMu sale to depend on government aid

By Henny Sender, Julie MacIntosh and Saskia Scholtes in New York
Thursday Sep 25 2008 17:15

http://us.ft.com/ftgateway/superpage.ft?news_id=fto092520081824282643&referrer_id=yahoofinance

Attempts to sell ailing Washington Mutual (NYSE:WM) , the sixth-largest US bank, are likely to hinge on government assistance, according to bankers and other potential buyers.

Bids for WaMu from potential buyers were due on Wednesday. But there has been little enthusiasm for a sale of the bank without government support to help a buyer cope with what could be tens of billions of dollars in losses on WaMu's mortgage and credit card assets.

Because of the desire for government support, it was more likely that WaMu would be sold to a domestic bank than to a private equity firm or a foreign bank, the people familiar with the talks said.

WaMu's share price fell on Thursday to $1.69, indicating that investors were growing less confident that the bank would be sold and avoid a takeover by the Federal Deposit Insurance Corporation.

At Thursday's price, WaMu's market value had fallen to about $2.9bn - or about 15 per cent of its tangible book equity of $18.8bn as of the second quarter of 2008.

JPMorgan Chase was on Thursday considered the frontrunner for WaMu, with Citigroup another possible buyer.

The discussion of official assistance to facilitate a WaMu sale comes at a time when Congress is deciding the fate of the Treasury's proposed $700bn rescue plan for the financial sector.

If a deal for WaMu fails to materialise, it would be a rare setback for TPG, the private equity firm that led a group that bought a minority stake in WaMu in April, with a $7bn capital infusion.

TPG in April concluded that the losses at WaMu were "likely [to] be in the mid-$20bns", according to a letter it sent to its investors. However, other bidders in April put the potential losses at more than $30bn.

"We thought the investment was a complete solvency bet," said one person involved in a possible bid for WaMu both back in April and now. "You would either make a lot or lose everything, and the odds were much greater that you would lose everything."

David Bonderman, TPG co-founder and WaMu board member, has sought to keep the government from taking action that could wipe out the value of TPG's investment.

At the same time, several bidders say they have concluded there is little reason to try to negotiate with WaMu when they can try to negotiate with the government directly, essentially bypassing the auction process conducted by Goldman Sachs, WaMu's adviser.