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Monday, December 10, 2007

WaMu Cuts Dividend, Raises Capital

by Calculated Risk on 12/10/2007 04:59:00 PM

WaMu PR: WaMu to Raise $2.5 Billion in Additional Capital, Reduce Dividend, Resize Home Loans Business and Cut Expenses to Fortify Capital Base

Washington Mutual, Inc. (NYSE:WM - News) announced today a series of actions designed to address the unprecedented challenges in the mortgage and credit markets by strengthening the company’s capital and liquidity and accelerating the alignment of its Home Loans business with its retail banking operations.

These actions include:
A capital offering of convertible preferred stock with aggregate proceeds of approximately $2.5 billion;

A major reduction in company-wide noninterest expense of approximately $500 million for 2008 as a result of a substantial resizing of its Home Loans business and reduced corporate support expense; and

A significant change in the strategic focus of its Home Loans business in response to a changed market.
In addition, the company said its Board of Directors intends to reduce the quarterly dividend rate to $0.15 per share from its most recent quarterly dividend rate of $0.56 per share.
Continued deterioration in the mortgage markets and declining housing prices have led to increasing fourth quarter charge-offs and delinquencies in the company’s loan portfolio. As a result, the company now expects its fourth quarter provision for loan losses to be between $1.5 and $1.6 billion, approximately twice the level of expected fourth quarter net charge-offs.

The company currently expects its first quarter 2008 provision for loan losses to be in the range of $1.8 to $2.0 billion, reflecting an increase in provision well ahead of charge-offs, which are also expected to increase significantly during the quarter. The first quarter range reflects the company’s current view that prevailing adverse conditions in the credit and housing markets will persist through 2008.

While difficult to predict, the company also currently expects quarterly loan loss provisions through the end of 2008 to remain elevated, generally consistent with its expectation for the first quarter of 2008.