just an FYI
WaMu's Hedge:
CEO Called In
Dimon & Co.
J.P. Morgan Made Bid,
But TPG Deal Won Out;
Uncertainty in Offer?
By ROBIN SIDEL
April 9, 2008
J.P. Morgan Chase & Co., which has emerged as the go-to bank for the financial industry, got spurned by Washington Mutual Inc. just weeks after receiving an urgent call for help from the struggling competitor.
WaMu, as expected, said Tuesday that it had obtained a $7 billion capital infusion from private-equity group TPG and other investors. What it didn't disclose was that it had been working on the TPG deal while negotiating with J.P. Morgan Chase, which made a preliminary takeover bid of as much as $8 a share in J.P. Morgan stock, or about $7 billion, from J.P. Morgan, according to people familiar with the situation.
The J.P. Morgan offer was in stock, so if J.P. Morgan stock rises, WaMu shareholders would have had the potential to benefit. The cash injection from TPG and other shareholders gives WaMu a significant capital cushion, but shareholders will see their interest in the thrift significantly diluted, as WaMu is issuing a slug of new stock to TPG and others. In addition, it is unclear whether the move is enough to shore up confidence in the nation's largest thrift, which has been hard hit by investor concerns about ballooning delinquencies in its core mortgage business.
Friday, WaMu traded at around $10, far lower than its 52-week-high of about $44, so the J.P. Morgan offer was a discount to the market price -- reflecting the bank's concerns about WaMu's battered business. Tuesday, WaMu shares fell $1.34, or 10%, to $11.81 as of 4 p.m. composite trading on the New York Stock Exchange.
Yesterday, some in the J.P. Morgan camp were steamed by WaMu's decision. "WaMu, in the world's worst way, did not want to do a deal with Chase and tried very, very hard to avoid engaging with Chase," one person on the J.P. Morgan team said.
WaMu's side castigated J.P. Morgan's offer, saying the bid was fuzzy and was worth far less than $8 a share.
What is clear is regulators prodded WaMu to shore up its capital. Industry regulators have been clamping down hard in recent weeks on the nation's financial institutions to ensure that they have enough of a cushion to cover anticipated losses. In WaMu's case, the regulators didn't play an active role in pushing one deal over another, people familiar with the matter said.
The cold shoulder from WaMu represents a rare loss for J.P. Morgan, which has stepped into a slew of crisis situations in recent months. Most famously, J.P. Morgan swooped in to buy Bear Stearns in a heavily discounted transaction that was backed by the Federal Reserve and averted a bankruptcy filing by Bear.
J.P. Morgan was deeply involved in the Bear deal in March when Chief Executive James Dimon received a call from Kerry Killinger, his counterpart at WaMu. Mr. Killinger told Mr. Dimon that WaMu was facing a significant capital shortfall and was ready to talk with prospective corporate buyers and private-equity firms, according to people familiar with the conversation.
A J.P. Morgan spokesman declined to comment on the conversation or the takeover bid. A WaMu representative also declined to comment.
Following the conversation, Mr. Dimon dispatched a couple of dozen bankers to WaMu's Seattle headquarters. Led by Charles Scharf, who runs J.P. Morgan's large retail operations, they spent days poring over WaMu's financial records and inner workings.
A number of other banks expressed interest in WaMu, but J.P. Morgan was the most advanced in its pursuit, people familiar with the matter said.
J.P. Morgan has long been viewed as a potential suitor, and that speculation has increased in recent months. WaMu's large branch network in California and Florida is particularly appealing to J.P. Morgan, which wants to expand in those regions.
Furthermore, WaMu's mortgage problems weren't viewed as toxic among J.P. Morgan's upper ranks. Mr. Dimon has built a career in buying troubled assets cheaply and turning them around. Mr. Scharf, who followed Mr. Dimon from Citigroup Inc. to Chicago's Bank One Corp. to J.P. Morgan, is one of Mr. Dimon's most-trusted lieutenants.
J.P. Morgan submitted the $8 offer to WaMu last week, according to people familiar with the situation. The bid wasn't a firm number, and it would potentially change based on the performance of WaMu's mortgage business, these people said.
J.P. Morgan also wanted to conduct additional due diligence on WaMu's books, people familiar with the matter said. But the bank's efforts ran aground over the weekend as WaMu pursued the deal with TPG. Top executives of J.P. Morgan were taken by surprise Sunday night when they learned WaMu was on the brink of announcing a deal with TPG.
WaMu's rejection isn't likely to stop J.P. Morgan from pursuing other deals. The big bank has been assessing a string of potential acquisitions, including other large regional banks, according to people familiar with the matter. J.P. Morgan is believed to covet an acquisition of SunTrust Banks Inc., which would give it a big Southeast presence. |
