Recapping the recapitalizations at WaMu, Wachovia and more

by Ryan Caione, April 21st, 2008, 6:14 am

Thanks to the far-reaching effects of the ongoing mortgage crisis, lenders are tightening their purse strings, private equity takeovers (so 2006) have dwindled to a trickle, and some financial services companies find themselves teetering on the brink of collapse. Yet some of those same companies are receiving — and investing — billions of dollars. Are they continuing to throw good money after bad?

The largest thrift in the US, Washington Mutual (WaMu), once one of the country’s largest mortgage lenders, has announced a plan to secure some $7 billion by selling equity securities to TPG Capital and other investors. As part of the deal, TPG’s founder and chairman David Bonderman, who has made his fortune through leveraged buyouts and by turning around companies such as Continental Airlines, will also take a seat on WaMu’s board (he was also a director of the company from 1996 to 2002).

Last week, after Wachovia, the fourth-largest bank in the US ranked by assets, announced a larger-than expected first-quarter loss, the company raised $7 billion by selling stock to unspecified investors. It was the second time this year that Wachovia went to the well: It raised more than $8 billion in January and February by issuing preferred stock and other securities. It is believed the company, which also cut headcount and dividends, is girding for another massive writedown of investments and loans on its books. It wrote off some $2 billion in the first quarter alone, and has set aside nearly $3 billion more to cover future losses.

Earlier this month, Swiss bank UBS announced it would write down some $20 billion of investments. No worries there, however, as it also announced that same day that it is receiving approximately $15 billion from a rights offering. Lehman Brothers raised about $4 billion in a similar offering that was oversubscribed, with demand for the securities outstripping supply.

Of course, the most high-profile (and one of the most expensive) transactions occurred late last year.  The largest financial services company in the US, Citigroup, raised $12 billion by selling preferred shares to investors such as Saudi Prince Al-Walid bin Talal and former chairman Sandy Weill, among others, in addition to selling 5% of itself to the Abu Dhabi Investment Authority. It also sold $12 billion in loans to a group of private equity firms. And Citi needs the cash: On Friday it announced its second straight quarterly losses — this time more than $5 billion — as well as $14 billion in writedowns of investments now considered hopeless.