Washington Mutual (WM) has announced that it will cut its dividend, stop lending to the subprime market, and raise $2.5 billion through a preferred stock offering. The market took that news badly and pushed the company’s shares down 6% after hours to $18.70.
The company will generate approximately $3.7 billion of tangible equity as a result of the proposed capital issuance and the intended reduction in the common dividend in 2008.
WM said it will continue to providing mortgage products to its customers. However, "the mortgage market is undergoing a fundamental shift due to credit dislocation and a prolonged period of reduced capital markets liquidity. As a result, WaMu expects national mortgage originations to shrink to $1.5 trillion in 2008, down about 40 percent from an estimated $2.4 trillion this year."
The company will fire 2,600 people in it home loan business and 550 corporate jobs.
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.
Douglas A. McIntyre
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