Washington Mutual sinks on federal probe; First Marblehead gets gift; United Rentals loses Cerberus case

By Evan Weinberger

New York, Dec. 21 - When a savings and loan institution is reeling from losses in its mortgage lending business, an investigation into the company's lending practices by federal investigators is not great news for investors.

That's exactly what is happening to Seattle-based Washington Mutual Inc., the largest savings and loan in the United States.

The Wall Street Journal reported late Thursday that the Securities and Exchange Commission has opened an investigation into several aspects of Washington Mutual's home lending practices. Among the issues regulators are looking into are whether WaMu was selling mortgages based on inflated appraisals to investors and then improperly accounting for those loans on financial statements.

The Office of Thrift Supervision is also looking into the appraisals practices, a statement from Washington Mutual said.

"We are voluntarily and fully cooperating with the SEC's inquiry as well as the OTS's and look forward to bringing the facts to both the regulators and public," according to the company statement made to the Journal.

The federal probe follows on the heels of an investigation launched by New York state attorney general Andrew Cuomo two months ago.

"After spending a month and a half investigating these allegations, we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals," the company statement said. "We take these allegations very seriously."

Washington Mutual has hit several major bumps since the subprime mortgage crisis hit. Earlier in the month, the company eliminated more than 3,100 jobs and closed several branches. It also shut down its subprime lending arm.

WaMu reported $1.6 billion in losses emanating from subprime mortgages earlier in December.

On Friday, Washington Mutual stock (NYSE: WM) sunk 57 cents, or 3.89%, to close at $14.10. Washington Mutual stock is down 68% for the year.

First Marblehead gets help

Troubled Boston-based student loans services provider First Marblehead Corp. got a much-needed early Christmas present Friday when it attracted a $260.5 million investment from GS Capital Partners, a Goldman Sachs-housed private equity fund.

The company ran into trouble earlier in the year when the market for securitized loans dried up.

As part of the deal, GS Capital Partners will receive a 20% stake in First Marblehead and has an outstanding offer to lend the company an additional $1 billion.

First Marblehead stock (NYSE: FMD) surged more than 70% in early training but gave back some of those gains. It still skyrocketed $7.46, or 66.37%, to close at $18.70.

That leap was keeping in line with the rest of the market's mood Friday. Reports of another cash infusion from a sovereign wealth fund into an investment bank - a rumored $5 billion from the sovereign investment arm of the Singapore government in Merrill Lynch - and strong earnings from Research in Motion Ltd. drove stocks higher.

The Dow Jones Industrial Average leaped 205.01 points, or 1.55%, to a close at 13,450.65.

The Nasdaq stretched 51.13 points, or 1.94%, to 2,691.99.

And the S&P 500 closed at 1,484.46, a gain of 24.34 points, or 1.67%.

United Rentals case closed

A Delaware court ruled that Greenwich, Conn.-based United Rentals Inc. could not force private equity shop Cerberus Capital Management to complete its $4 billion takeover, which was agreed to in July.

Cerberus broke off the agreement in November.

"Because (United Rentals) has failed to meet its burden of demonstrating that the common understanding of the parties permitted specific performance of the merger agreement, URI's petition for specific performance is denied," the Delaware court ordered on Friday.

There was no word yet whether United Rentals would appeal the decision.

Stock in the construction equipment rental agency (NYSE: URI) fell $3.69, or 17.08%, to $17.91 Friday.

Philips, Respironics breathe life into deal

Murrysville, Pa.-based Respironics Inc. announced the completion of a $5.1 billion merger with Royal Philips Electronics Friday.

Philips will pay $66 per share to holders of stock in Respironics.

Respironics makes products designed to aid sufferers of obstructive sleep apnea, or repeated cessation of breathing during sleep. It also produces other sleep and breathing aids.

After the deal closes, which is expected during the first quarter of 2008, Respironics will be the home of Philips Home Healthcare Solutions, a division of Philips Healthcare. Philips expects Respironics' senior staff to stay on after the merger is complete.

"Philips is the right partner to create additional growth opportunities for our company, and we believe that our organization will benefit significantly by being part of a larger, growing and dynamic organization," Respironics chief executive officer John Miclot said in a statement Friday.

Philips executives were equally pleased with the deal. "A core part of Philips' health care strategy is to achieve a leading position in the high growth sector of home health care," Steve Rusckowski, CEO of Philips Healthcare and member of the board of management of Philips Electronics, said in a news release. "This acquisition, with its significant strategic and financial benefits to Philips Healthcare, is another important step in carrying out this strategy."

Amsterdam-based Philips saw its New York-listed stock (NYSE: PHG) slip $1.03, or 2.33%, to $43.12, on the news.

Respironics stock (Nasdaq: RESP) surged $12.21, or 22.99%, to $65.32.

Manor Care goes private

A last-minute snag almost delayed the closing of the Carlyle Group's $6.3 billion buyout of Manor Care, but a Michigan court dropped its temporary restraining order on the deal Friday.

Carlyle closed on the Toledo, Ohio-based nursing home operator later in the afternoon, taking the company private.

Stock in Manor Care (NYSE: HCR) gained 29 cents, or 0.43%, to close at $66.99, its final day of trading and a penny short of the purchase price.

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