WaMu hammered on restructuring; Rate cut pummels mortgage companies, home builders

By Evan Weinberger

New York, Dec. 11 - Washington Mutual Inc. crumbled Tuesday after it announced a major restructuring, including a layoff of more than 3,000 jobs and the shuttering of its subprime mortgage lending channel.

The Seattle-based bank also launched $2.5 billion in convertible perpetual preferred stock and the slashing of its quarterly dividend.

All this came because of a $1.5 billion to $1.6 billion write-down on WaMu's subprime mortgage portfolio.

Tough talk surrounded WaMu throughout Tuesday. Punk Ziegel analyst Richard Bove published a note to investors Tuesday morning saying that JPMorgan Chase was looking to make a major acquisition and identified Washington Mutual as a prime target.

So Washington Mutual's stock was already on a downward spiral prior to the Federal Reserve's announcement of a 25 basis point cut to both the Federal Funds and the discount rate Tuesday afternoon. That's when the bottom dropped out.

Washington Mutual stock (NYSE: WM) fell $2.46, or 12.37%, to close at $17.42.

Help may be on the way, however. Washington Mutual's preferred offering was trading up 3.5 to 4.5 points in the gray market, pre-pricing trading. Price talk richened as demand grew, market watchers said.

There are a lot of players "that have a skin in the WaMu game," one analyst said. "It's not too big to fail, but it's as close as you can get to that."

Because of the strength of Washington Mutual's retail banking operation, the company didn't have to go the expensive private placement route that Citigroup Inc., Countrywide Financial Corp. and E*Trade Financial Corp. had to travel for a needed cash infusion.

"I think probably because they are somewhat larger and stronger, they're able to do that," the analyst said regarding the public deal that is scheduled to price Tuesday night.

Washington Mutual is still going to have to pay for its financing, another analyst said, but not quite as much as other institutions. "When you're dealing with lots of investors on a public issue, they compete," another analyst said.

Rate cut slams mortgage brokers

Along with Washington Mutual, other players in the mortgage and housing game were battered Tuesday on the Fed's rate cut.

In fact, just about the entire stock market got their ears boxed.

The Dow Jones Industrial Average tumbled 294.96 points, or 2.14%, to 13,432.77.

The Nasdaq dived 66.60 points, or 2.45%, to 2,652.35.

The Standard & Poor's 500 took a 38.31 point, or 2.53%, fall to 1,477.65.

One trader summed up the mood on the street succinctly: "Not enough - [The Fed] should have done one-half point on discount rate too."

The stock sell-off was felt particularly acutely in mortgage- and housing-related stocks.

The two government-supported mortgage backers, Washington-based Fannie Mae and McLean, Va.-based Freddie Mac, saw steep losses on the day.

Fannie Mae stock (NYSE: FNM) spilled $2.62, or 7.10%, to close at $34.29.

Freddie Mac (NYSE: FRE), whose chief executive officer, Richard Syron, told a Goldman Sachs conference Tuesday that he expected to see a total of $10 billion to $12 billion in credit losses, lost $3.73, or 10.64%, to close at $31.31.

And Calabasas, Calif.-based Countrywide, America's largest mortgage lender, saw its stock lose $1.18, or 9.43%, to close at $11.33.

Homebuilders hammered

The smaller-than-hoped-for rate cut did a number on homebuilders as well, as investors feared the cuts would not open the spigot on new loans nearly enough.

Fort Worth, Texas-based D.R. Horton Inc. (NYSE: DHI) fell $1.55, or 10.50%, to close at $13.21.

Miami-based Lennar Corp. (NYSE: LEN) dropped $2, or 10.52%, to $17.02.

Bloomfield Hills, Mich.-based Pulte Homes Inc. (NYSE: PHM) lost $1.48, or 12.12%, to close at $10.73.

Other homebuilders took even fiercer beatings.

Atlanta-based Beazer Homes USA Inc. (NYSE: BZH) gave back $1.28, or 12.56%, for an $8.91 close.

Irvine, Calif.-based Standard Pacific Corp. closed at $3.34, a give back of 60 cents, or 15.23%.

WCI Communities Inc., based in Bonita Springs, Fla., took the biggest blow Tuesday, losing 98 cents, or 20.37%, for a close of $3.83.

Switch flipped on Genesis deal

STMicroelectronics NV (NYSE: STM) announced the purchase of Genesis Microchip Inc. Tuesday before the market open.

Geneva-based microchip maker STM agreed to pay $8.65 per share, or a total of $336 million, in cash for shares of Santa Clara, Calif.-based Genesis. If any remaining shares of Genesis are outstanding after the initial tender offer is complete, STM will begin a second-stage merger in which any remaining shares will be converted into the right to receive the per-share purchase price. STM expects to begin the second stage no later than Dec. 18.

The deal represents a 60% premium on Genesis' closing stock price on Monday.

The deal is expected to close during the first quarter of 2008.

Genesis produces circuits and chips for digital television. STM believes that adding Genesis will increase its footprint in the growing digital TV sector.

"STMicroelectronics is a leader in digital consumer technologies, with a strong position in set-top box compression and decompression technologies and 'front end' processing technologies in digital TV. Genesis is a leader in 'back-end' image and video processing and digital interconnect technologies," Philippe Lambinet, corporate vice president and general manager of STMicroelectronics' Home Entertainment & Displays Group, said in a statement.

"The combined company will have the products, technology, IP and expertise to offer best-in-class integrated DTV processing solutions that our customers are increasingly demanding."

STM stock slipped 30 cents, or 1.93%, to $15.28 on the news.

Genesis stock (Nasdaq: GNSS) surged $3.09, or 57.22%, to $8.49 on the takeover.

JDS Uniphase picks up optical scanner

Milpitas, Calif.-based optical products and communications and testing equipment maker JDS Uniphase Corp. (Nasdaq: JDSU) announced the acquisition of American Bank Note Holographics, Inc. on Tuesday. The deal, which is expected to close by the end of March, is for a total of $138 million in cash and JDS stock.

Shareholders in American Bank Note, which is based in Robbinsville, N.J., and produces holographic and optical security components for transaction cards, will receive $6.15 per share. That total per share payment will be issued as $5.15 worth of JDS Uniphase stock and $1 in cash. The value of JDS Uniphase stock will be defined three days prior to the transaction's closing date.

American Bank Note will become a part of JDS Uniphase's Advanced Optical Technologies division.

JDS Uniphase believes the acquisition will strengthen its position in the transaction card security and brand protection fields.

"As the battle against counterfeiters becomes increasingly relevant on a global scale, brand owners are heavily investing in overt and covert security solutions," said Roy Bie, senior vice president and general manager of JDSU's Advanced Optical Technologies business segment. "With the addition of ABNH's technology expertise and leadership in providing security to the transaction card market, we will be uniquely positioned to supply comprehensive security solutions to our customers in the fast-growing brand security market."

JDS Uniphase stock slipped on the news, losing 48 cents, or 3.44%, to close at $13.46.

American Bank Note (OTCBB: ABHH) shot up 30 cents, or 5.36%, to $5.90.

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