 Wachovia suffers record $8.9b loss
(China Daily)
Updated: 2008-07-23 07:40 Wachovia Corp, the US bank that hired Treasury Undersecretary Robert Steel as chief executive officer two weeks ago, reported a record quarterly loss of $8.9 billion and cut the dividend by 87 percent. The stock fell as much as 12 percent in early New York trading. The second-quarter loss of $4.20 a share compared with net income of $2.3 billion, or $1.23, a year earlier, the Charlotte, North Carolina-based company said yesterday. The loss included a $6.1 billion charge tied to declining asset values. The writedown and second dividend reduction in three months reflect Steel's response to setbacks including the Golden West Financial Corp acquisition in 2006, which cost former CEO Kennedy Thompson his job after eight years. Wachovia has dropped more than 75 percent in New York Stock Exchange composite trading since it spent $24 billion two years ago to buy Golden West just as house prices were peaking. "This is Steel's chance as the new guy to set the bar low so that he can increase the dividend going forward if their performance improves," said David Dietze, president and chief investment strategist at Point View Financial Services in Summit, New Jersey, which owns Wachovia shares. Steel also said the company is moving to "sell selected non-core assets" and reduce the number of business customers who only use the bank for loans rather than other services. Wachovia shares have declined 65 percent this year, the second- worst performance on the 24-member KBW Bank Index behind National City Corp, Ohio's largest bank. The second-quarter loss marks the first time Wachovia has posted consecutive losses in at least 20 years. Wachovia's report follows the release of better-than-estimated quarterly results at JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Wells Fargo & Co. Wachovia said on July 9 that losses in the three months ended June 30 would be at least $2.6 billion, after $3.3 billion of losses on option-adjustable-rate mortgages. The loans let borrowers skip part of their payment and add the balance to principal. The bank said last month that it stopped offering the mortgages. Declining house prices in California and Florida, which account for about 70 percent of Golden West's $121 billion of loans, have left 14 percent of the bank's option-ARM customers with zero or negative equity in their homes. Merrill Lynch & Co analyst Edward Najarian estimated on July 9 that losses from the loans would total about $18 billion over four years, double those previously estimated by Wachovia. Dividend slashed The dividend was lowered to 5 cents a share from 37.5 cents, marking the second time this year that the quarterly payout was cut. The decision follows a month-long budget review led by David Carroll, head of the company's capital management group. Profit at the division that includes retail, small business and commercial customers fell 23 percent to $1.12 billion. The bank set aside $765 million more for credit losses in consumer real estate and auto loans. Steel, 56, has called Wachovia's consumer banking franchise the best in the US because of its coverage of affluent and fast-growing markets stretching from Connecticut to California. The corporate and investment bank earned $209 million, compared with $779 million a year earlier. Wachovia has announced 500 job cuts at the unit this year as demand wanes for packaging home loans into securities and advice on mergers. Earnings at the capital management subsidiary fell to $297 million from $312 million. The unit includes the A.G. Edwards Inc brokerage acquired last October. In addition to Golden West, Thompson was criticized by shareholders after Wachovia was forced to pay as much as $144 million to settle complaints it failed to police telemarketers and payment processors who looted customer accounts. Wachovia's securities division was inspected last week by regulators from more than five states who delivered subpoenas as part of a probe into the company's sales of auction-rate bonds. Wachovia's Tier 1 capital ratio - a benchmark regulators use to monitor a lender's ability to withstand loan losses - rose to 8 percent from 7.42 percent at the end of the first quarter. The minimum for a "well-capitalized" rating from US regulators is 6 percent. Agencies (China Daily 07/23/2008 page17) |
