Shares Washington Mutual Inc. (WM) dropped 10% yesterday (Tuesday) after the mortgage lender announced it raised $7 billion in capital, while slashing its dividend and cutting 3,000 jobs.

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Seattle-based WaMu, as the savings and loan is often called, raised the capital by issuing 176 million new shares at $8.75 per share, a 33% discount to Monday’s closing price of $13.15. It also issued $5.5 billion in convertible preferred shares, the company said in a statement today.

Private equity firm TPG Inc. purchased $2 billion of the new securities. Current WaMu institutional investors mostly purchased the remainder.

The company also announced it would reduce its quarterly dividend rate to $0.01 per common share from its most recent rate of $0.15 per common share. The dividend reduction is expected to preserve approximately $490 million of capital annually.

"We’re very pleased that TPG and these major investors have expressed their confidence in WaMu’s underlying value and its growth potential," said WaMu Chairman and CEO Kerry Killinger in a statement. "This substantial new capital – along with the other steps we are announcing today – will position us for a return to profitability as these elevated credit costs subside. With the support of these investors, we have every confidence in our ability to deal with today’s market conditions and restore shareholder value."

WaMu is the latest financial firm to seek an outside capital infusion due to heavy subprime-related losses. For the fourth quarter, the firm took its first loss in 10 years with $3 billion in write-downs due to mortgage and loan losses. The company announced another $1.1 billion lost for the first quarter.

"It’s dilutive for shareholders on a massive basis, so it’s not great for the company, but it’s great for the system that capital can be raised during these stressful times," Vincent Farrell, a principal at New York-based Scotsman Capital Management LLC, said on Bloomberg Radio.
  
WaMu is the sixth largest U.S. bank, based on bank deposit assets, with a 3.2% share behind Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Wachovia Corp. (WB), Wells Fargo & Co. (WFC) and Citigroup Inc. (C), Chief Executive Officer Kerry Killinger said in a Jan. 29 investor conference. WaMu had $194.3 billion in deposits as of Dec. 31, Bloomberg News reported.

Shares of WaMu dropped $1.34, a 10.19% decline, to close at $11.81.

News and Related Story Links:

• News Release:
  WaMu to Strengthen Capital Position, Raising $7 Billion Anchored by a TPG Capital Investment

• Bloomberg News:
  Washington Mutual Gets $7 Billion From TPG-Led Group

• Money Morning:
  Washington Mutual Gains on Possible Capital Infusion

It took a six-hour strike to get it done – with more than 31,000 members of the United Auto Workers walking out on their jobs at the newly private automaker, Chrysler LLC, at 11 a.m. yesterday (Wednesday) – but the company and the union reached agreement on a tentative four-year deal.

News of the Chrysler/UAW pact came shortly after the UAW announced that General Motors Corp. (GM) workers had ratified their own four-year deal with the No. 1 U.S. automaker.

The union will now move on to struggling Ford Motor Co. (F). But Ford, which hemorrhaged $12.6 billion last year, may end up being the toughest bargainer of the three because of its weakened financial position, experts told The Associated Press. Industry analysts believe that Ford likely will seek a different deal than Chrysler and GM, very likely with much deeper concessions. Marcey Evans, a spokesperson for Ford, said the company hadn’t heard from the union, as of last night. The company wasn’t able to say when talks might resume.

The short Chrysler strike yesterday – which follows insider leaks of more job cuts, both union and salary positions – affected 41 manufacturing plants and facilities. The only facilities not hurt by the strike were five assembly plants Chrysler had already closed due to excess inventory.

And while it’s the first UAW strike of Chrysler in 10 years, it was the UAW’s second strike in three weeks. Its walkout of GM in late September lasted two days. Negotiators there walked out with an agreement that gave UAW job-security pledges, while allowing GM to shed more than $50 billion in health-care obligations.

There were worries that negotiations with Chrysler could prove longer and more tumultuous, Erich Merkle, director of forecasting for automotive consulting firm IRN Inc., told CNN Money. After almost 10 years of ownership by Germany-based DaimlerChrysler (now Daimler AG (DAI)), 80.1% of Chrysler Group was sold to American equity firm Cerberus Capital Management L.P., in May 2007.

"The UAW is somewhat of an unknown entity to Cerberus and Cerberus is an unknown entity to the union. I don’t know if the parties understand each other that well," Merkle said . "It’s not like GM, which is an old hand in dealing with the union. I wouldn’t assume it is only going to be two days."

A person with inside knowledge of the Chrysler agreement told The AP the deal included some guarantees that vehicles will be produced at U.S. factories, a company-funded union-run trust that will pay much of Chrysler’s $18 billion in long-term retiree health care costs, and a lower wage scale for some newly hired workers. The person, who requested anonymity because the contract has not been ratified by union members, said Chrysler’s vehicle guarantees, which translate into job security for veteran union workers, are not as extensive as those given by GM. In fact, many of the Chrysler guarantees last only through the lifespan of current products. GM, by comparison, made guarantees at many factories that included the next generation of cars, trucks and even parts.

According to published reports, the proposed new lower wage scale at Chrysler is said to cover new hires who would serve as the replacements for parts-transportation workers. Buyout and early retirement offers would be made to current workers in an effort to reduce the ranks, the person said. The lower wage scale is similar to the one negotiated by GM, sources say.

UAW President Ron Gettelfinger wouldn’t outline the details of the agreement with Chrysler.

"This agreement was made possible because UAW workers made it clear to Chrysler that we needed an agreement that rewards the contributions they have made to the success of this company," Gettelfinger said in a statement.

Chrysler said the tentative agreement covers about 45,000 workers and 78,000 retirees and spouses, and noted that it does include the retiree health care trust. What’s not clear is how much money the newly private company will contribute to the trust.

The UAW said its "historic" contract with GM also includes a retiree health care trust. It was reportedly approved by 66% of production workers and 64% of skilled trades workers. The Sept. 26 agreement was reached following a two-day national strike.

The UAW’s strike at 19 of Chrysler’s 24 U.S. manufacturing plants began at 11 a.m. yesterday, but since the agreement was reached six hours later, the UAW’s Gettelfinger said the walkout would end immediately.

News and Related Story Links:

• CNN Money: Strike 2:
  UAW Shuts Down Chrysler.

• Money Morning Investment Analysis:
  Insiders Say Chrysler LLC Will Cut Jobs in Lieu of Possible Strike.

• The Associated Press:
  UAW Settles With Chrysler, Ratifies GM.