July 15 (Bloomberg) -- TPG Inc.'s plan to profit from Washington Mutual Inc., the biggest U.S. savings and loan, may be sinking with the housing market.

The private-equity firm, led by David Bonderman, anchored a $7 billion cash injection into Washington Mutual in April by purchasing stock at a discount. The Seattle-based lender's share price has since plummeted, wiping out two-thirds of the investment's value.

Washington Mutual tumbled to the lowest since 1991 yesterday on the New York Stock Exchange, leading the drop in home lenders after IndyMac Bancorp Inc. was seized last week by U.S. regulators. Bonderman's firm, which invested $2 billion in Washington Mutual for a 13 percent stake, has been stung by record foreclosures, particularly in California, home to half of the bank's loans.

``What he's got to work through are these problem loans, through a tough housing market,'' said analyst Gary Gordon of Portales Partners LLC in a Bloomberg Television interview, adding that Bonderman can still make a profit. ``What he got was a very good branch franchise, which is worth a lot of money,'' said Gordon, who has a ``hold'' rating on Washington Mutual.

Three months ago, with Washington Mutual's shares at $13.15, a group of investors led by Forth Worth, Texas-based TPG agreed to buy $7 billion of stock at $8.75, a 33 percent discount. The stock slumped 35 percent yesterday to $3.23, leaving TPG's investment down 63 percent. TPG also has warrants to buy 57.1 million shares at $10.06 each.

WaMu's Losses

Washington Mutual, known as WaMu, rebounded today, advancing 12 percent to $3.61 at 4 p.m. on the New York Stock Exchange. The company said in a statement late yesterday that it's ``well capitalized'' with more than $40 billion in liquidity and $150 billion in retail deposits. It has about 2,500 braches throughout the nation.

WaMu incurred $3 billion of losses in the past two quarters as customers fell behind on their mortgages. The company cut its dividend twice this year and stripped Chief Executive Officer Kerry Killinger of his role as chairman.

The lender probably will report a second-quarter loss next week of $1.2 billion, according to a survey of analysts by Bloomberg. Analysts at Lehman Brothers Holdings Inc. said yesterday WaMu may post cumulative losses of $26 billion. The stock tumbled 92 percent in the past year.

Capital Question

As losses mount, a clause in the TPG agreement makes it more costly for WaMu to raise capital or be acquired. If WaMu is sold for less than $8.75 a share or is forced to raise more than $500 million in equity, it must compensate TPG for the difference, according to filings with the U.S. Securities and Exchange Commission.

``We don't know how their investment plays out, but we also don't know how this affects WaMu to the extent they need to raise more capital,'' said Steven Davidoff, law professor at Wayne State University Law School in Detroit. ``They really can't raise equity.''

TPG spokesman Owen Blicksilver declined to comment. WaMu spokesman Brad Russell confirmed details of the TPG deal.

The world's biggest banks and lenders have raised $325.2 billion and recorded $415 billion of writedowns and credit losses in the worst housing crisis since the Great Depression. More than 100 lenders have been forced to halt operations, close or sell themselves. Pasadena, California-based IndyMac opened yesterday under the control of the Federal Deposit Insurance Corp.

Washington Mutual ranked sixth among U.S. mortgage companies last year, according to trade publication Inside Mortgage Finance of Bethesda, Maryland. During the height of the real estate boom, WaMu ranked No. 11 among subprime lenders, or companies that specialized in customers with the weakest credit.

TPG, co-founded by Bonderman in 1992, teamed with Kohlberg Kravis Roberts & Co. to buy Dallas-based power producer TXU Corp. last October. TPG made $1.3 billion for investors in less than a year from last month's sale of Alltel Corp. to Verizon Wireless.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

Last Updated: July 15, 2008 16:22 EDT