Investment In Washington Mutual (WM) May Undercut Common Shareholders
Washington Mutual (WM) may get $5 billion in much-need capital. It is an example of how financial companies bet on subprime mortgages which cut their share prices by as much as 75% due to write-offs. The firms then go into…
Washington Mutual (WM) may get $5 billion in much-need capital. It is an example of how financial companies bet on subprime mortgages which cut their share prices by as much as 75% due to write-offs. The firms then go into the market for capital, and, as they find it, dilute their investors dropping stock value even further.
According to The Wall Street Journal "Private-equity firm TPG and other investors are close to a deal to invest $5 billion in Washington Mutual." The money may go in as common or preferred stock. Either way, the capital table of WM will be affected in a way that current shareholder could see another 35% of the value of their shares disappear. Washington Mutual’s current market cap is only $9 billion. The stock, now at $10, could eventually drop below $7 because of the new money coming in.
The cycle of new investment following large write-offs does significant damage to both individual and institutional shareholders in large banks and brokerage firms sucking more stock market value out of investments. Many of the investors in these firms are already stretched thin by market losses.
But, it is better than the value of the common shares in a Chapter 11 filing.
Douglas A. McIntyre
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
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A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.