Interest Rate Roundup

Monday, December 10, 2007

Thank you sir, may I have another?

Why yes, I'd be more than happy to tell you about yet another capital raising. Glad you asked. After the market closed, Washington Mutual dropped the following bombs:

* First, it's going to sell $2.5 billion in convertible preferred stock to raise capital.

* Second, it's slashing its quarterly dividend to 15 cents per share from 56 cents per share.

* Third, it expects industrywide mortgage originations to plunge 40% in 2008 to $1.5 trillion from $2.4 trillion this year. To prepare for that, it's going to completely halt subprime lending ... close 190 of its 336 home loan centers and sales offices ... shutter nine processing and call centers ... eliminate 2,600 home loan jobs and 550 corporate/support positions. It's also shutting its WaMu Capital institutional broker-dealer business and its mortgage banker warehouse lending ops.

* The firm will take a $1.6 billion charge to write down goodwill tied to the home loan business. It also said that due to rising loan delinquencies and losses, it will take a Q4 loan loss provision of $1.5 billion-$1.6 billion and a Q1 2008 provision of $1.8 billion-$2 billion. For comparison sake, Wamu's Q3 provision was only $967 million, while its Q2 provision was just $372 million. Talk about a change in fortunes.


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