Tuesday, July 22, 2008

Wachovia loses $8.9B, cuts 6,350 workers, dividend

Wachovia loses $8.9B, cuts 6,350 workers, dividend

By IEVA M. AUGSTUMS

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Wachovia Corp. reported a surprisingly large second-quarter loss Tuesday, deflating Wall Street's hopes that the nation's big banks are weathering the credit crisis well. The nation's fourth-largest bank by assets said it lost $8.86 billion, is slashing its dividend and eliminating 10,750 positions after losses tied to mortgages soared.

Even excluding one-time items, the results substantially missed Wall Street estimates.

"These bottom-line results are disappointing and unacceptable," Chairman Lanty Smith said in a statement. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility."

Wachovia said it lost the equivalent of $4.20 per share in the April-June period. In the same timeframe last year, the bank earned $2.34 billion, or $1.22 per share.

Excluding $6.1 billion in write-downs to the value of its intangible assets and merger-related and restructuring charges of $128 million, Wachovia lost $2.67 billion, or $1.27 per share. Second quarter results include the bank's October acquisition of A.G. Edwards Inc.

Analysts on average expected a loss of 78 cents per share on revenue of almost $8.4 billion.

Earlier this month, Wachovia had projected a $2.6 billion to $2.8 billion quarterly loss, equal to $1.23 to $1.33 per share, excluding goodwill items.

The Charlotte-based bank cut its quarterly dividend to 5 cents per share from 37.5 cents, which will conserve approximately $700 million of capital per quarter. In April, Wachovia slashed its dividend 41 percent.

As part of a plan to cut 2009 expenses by $1.5 billion, the bank said it would lay off 6,350 workers and eliminate 4,400 open positions and contractors.

During the quarter, the Wachovia boosted its provision for loan losses to $5.57 billion from $179 million a year ago, and added $4.2 billion to its reserves for bad loans.

Wachovia has been suffering from its 2006 acquisition of Golden West Financial Corp. The bank paid roughly $25 billion for the California mortgage lender known for exotic loans.

The so-called "Pick-a-Payment" loans, which Wachovia inherited from Golden West, have proved a headache for the bank and a lightning rod for shareholders, defaulting at higher rates than other mortgages.

Wachovia recently discontinued offering the "Pick-A-Payment" loan option, which allows customers to pay a less-than-full interest payment on all new home loans. The bank also had hired The Goldman Sachs Group Inc. to conduct an analysis of its loan portfolio and advise it on strategic alternatives.

Late Monday, Wachovia announced plans to leave the wholesale mortgage lending business. And beginning Friday, the company will no longer offer mortgages through brokers, joining other lenders making similar moves to exit the troubled sector.

Big banks, such as Bank of America Corp. and National City Corp., have stopped making loans through brokers entirely, relying instead on their loan officers. National City said it was forced to do so by a continuing downturn in loan demand, while Bank of America said it saw better "long-term opportunity" in working through its own loan officers.

Wachovia spokesman Don Vecchiarello said in a statement that the company "recognized some opportunities to re-position our business" given the current market conditions.

Earlier this month, Wachovia named former Treasury Undersecretary and Goldman Sachs executive Robert Steel as chief executive, replacing the ousted Ken Thompson. Within a week of being on the job, the bank's shares tumbled to a new 17-year low.

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