Wachovia's posted loss unexpected

Wachovia Corp, the fourth-largest US bank, reported an unexpected loss because of subprime infected mortgage holdings and said it plans to raise capital by selling shares to outside investors.

The first-quarter loss of $393 million, or 20 cents a share, compared with earnings of $2.3 billion, or $1.20 a share, a year earlier, the Charlotte, North Carolina-based company said in a statement yesterday.

Wachovia posted its first quarterly loss since 2001 and cut the dividend, less than three months after Chief Executive Officer Kennedy Thompson told shareholders he expects lower interest rates to reduce home-loan losses and increase profit over time. The company's market value dropped 50 percent since the $24.6 billion takeover of Golden West Financial Corp in October 2006, just before the housing market peaked.

"The most painful decision was to reduce the dividend, because it adversely affects our shareholders," Thompson said in the statement.

The capital raising comes less than a week after Washington Mutual Inc, the largest US savings and loan, got $7 billion from investors led by David Bonderman's TPG Inc. In all, banks and securities firms, including Citigroup Inc and Lehman Brothers Holdings Inc, have raised about $140 billion since last year after more than $245 billion of losses tied to the collapse of the subprime mortgage market.

Analysts had been estimating Wachovia would earn about $715 million before the company said late Sunday it was bringing forward the release of first-quarter results by four days. The decision prompted Gerard Cassidy, an analyst at RBC Capital Markets, to say he now assumes the company will report "a meaningful loss".

Led by 57-year-old Thompson, Wachovia's biggest transaction was the acquisition of Oakland, California-based Golden West at the height of the housing boom. Thompson got board approval for the deal 11 days after the initial contact between the two companies in April 2006, according to a US regulatory filing.

Golden West specialized in so-called option adjustable-rate mortgages, which allow borrowers to decide to skip some or all of their monthly payments and add the amount to their principal. About 60 percent of Wachovia's $120 billion in adjustable-rate mortgages are in California, which ranks among the states hardest hit by the slide in housing prices.

Agencies

(China Daily 04/15/2008 page17)