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Apr-15-2008

Wachovia's Lead Independent Director Says Board Backs Thompson

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Wachovia said it will raise $7 billion through an offering of common and preferred stock. (More...)
Wachovia, which has slightly more than 200 branches in the region, was unable to provide information today on the performance of mortgages in the Philadelphia region, where it made 15,554 mortgages worth $2 billion in 2006, according to the most recent federal data. (More...)
Wachovia raised $3.5 billion through a secondary offering in February. (More...)
The sharply rising credit provisions at WaMu and Wachovia show that big mortgage companies are belatedly taking a much more realistic view of the problems in many U.S. housing markets. (More...)
Non-performing assets of $8.3 billion rose 56% from the fourth quarter and were eight times the level of just a year ago. (More...)
Just as another big mortgage lender, Washington Mutual ( WM, Fortune 500 ), did last week, Wachovia is finally confronting the steep price it will have to pay for the excesses of the housing boom. (More...)
What's next for Wachovia? Shareholders can only hope the bleeding will relent sometime soon, but if recent market activity is any indicator, investors could face rough sailing for quite some time. (More...)
WaMu, which just months earlier had forecast a first-quarter credit-loss provision of around $1.9 billion, said last week that the actual provision was $3.5 billion. (More...)
Ken Thompson, the chief executive of Wachovia, said: "I am deeply disappointed with our first-quarter results. (More...)
Charlotte is the second biggest banking center in the country and Wachovia's the biggest bank here, locally. (More...)
Wachovia's first-quarter loss could be a harbinger of worse to come for the financial sector. (More...)
Oil prices rose to an intraday trading record above $112 a barrel Tuesday after the U.S. dollar fell further and crude supplies to the U.S. and elsewhere. (More...)
A key question is whether banks can make up for losses on mortgages with revenue from other businesses. (More...)
The company ended the quarter with a Tier-1 capital ratio of 7.5%, up from 7.4% at year-end, and well above the 6% level that regulators say indicates a bank that is considered to be "well-capitalized." (More...)

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Wachovia said it will raise $7 billion through an offering of common and preferred stock. The bank will also cut its dividend 41 percent to 37.5 cents per share. That move should help the company save $2 billion annually. The capital raising plan is an effort to shore up its capital base in response to rising delinquencies and defaults among mortgages and other loans that have plagued the financial-services sector since the middle of 2007. Wachovia is one of many national banks expected to report financial results this week. Washington Mutual Inc. is scheduled to announce its first-quarter results Tuesday. The Seattle-based bank already said it expects to post a loss of $1.1 billion during the first quarter as it increased its loan-loss reserves to cover troubled mortgages. [1] The provision largely reflected more severe deterioration in the residential housing market, particularly in specific markets in California and Florida." Many of Wachovia's troubles relate to its $24 billion acquisition of Golden West Financial, of California, in 2006, near the peak of the housing boom in the United States. Golden West specialised in "Pick-a-Pay" adjustable-rate mortgages, which allow borrowers to skip some of their monthly payments and add the amount to their principal. This type of mortgage has been among the highest to default, accounting for $1.1 billion of Wachovia's $2.8 billion of first-quarter credit losses. Wachovia said that it would cut its quarterly dividend from 64 cents to 37½ cents to save $2 billion a year. Standard & Poor's, the ratings agency, changed its outlook on Wachovia's long-term debt from "stable" to "negative" yesterday, making a downgrade more likely. Other writedowns are expected this week, as Citigroup, Merrill Lynch and JPMorgan are expected to announce further sub-prime-related hits. Separately, it emerged that Credit Suisse may need to take a writedown of between SwFr3 billion (£1.5 billion) and SwFr5 billion for its first quarter. It is understood that Deutsche Bank is negotiating with a consortium of private equity firms to offload about $20 billion of its backlog of about $55 billion of leveraged loans.[2] " increase sharply capital ratios to deal with any conceivable circumstances that might develop in the future." Wachovia ( WB, Fortune 500 ) witnessed the impact of a worsening housing market first hand in recent months.The company reported a surprising first-quarter loss of $350 million Monday, hurt, in part, by its ill-timed 2006 acquisition of California mortgage lender Golden West Financial Corp. The Charlotte-based bank, which is the first of a group of banks expected to report dreary results, also said Monday it would cut its quarterly dividend by 41% to 37.5 cents, a move it hopes would save the company $2.1 billion annually.[3]

Like many of its mortgage customers, Wachovia Corp., the biggest bank in the Philadelphia region, bought at the peak and is suffering painful losses as a result. The deal in question is Wachovia's 2006 purchase of mortgage lender Golden West Financial Corp. for $24.2 billion in a bid for growth in then-hot markets, such as California and Florida. With those states leading a national downturn in residential real estate that has no end in sight, Wachovia announced today major moves to protect itself from future losses. The Charlotte, N.C., company said it would raise $7 billion selling stock and cut its dividend 41 percent, giving the nation's fourth-largest bank $11 billion over the next two years to absorb losses on mortgages and other loans.[4] Wachovia wrote off $2.9 billion in the second half of 2007, mainly because of loans related to housing and collateralized debt obligations backed by mortgages to borrowers with poor credit records. Wachovia's capital raising would be the second this year following a $3.5 billion offering of preferred stock in February. It would also mirror the $7 billion investment last week in Washington Mutual Inc., the largest U.S. savings and loan, by a group led by David Bonderman's TPG Inc. Washington Mutual cut its dividend to 1 cent a share from 15 cents and announced 3,000 job cuts. Thompson, 57, who became CEO of Wachovia predecessor First Union Corp. in April 2000, made his biggest acquisition with Golden West, the Oakland, California-based home lender, at the height of the housing boom.[5] NEW YORK (Reuters) - Wachovia Corp posted a surprise first-quarter loss on Monday as credit problems from mortgages and other debt soared, prompting it to raise $7 billion of capital, slash its dividend and cut jobs. Wachovia, the fourth-largest U.S. bank, sold shares at a discount after boosting its reserves for credit losses 16-fold to $2.83 billion, and writing off $1.56 billion of debt, largely tied to the nation's housing slump and strained credit markets. Wachovia will cut 500 corporate and investment banking jobs this quarter. "These actions are not without cost, and I wish they were not necessary, but they are," Chief Executive Ken Thompson said on a conference call.[6] NEW YORK (Reuters) - Wachovia Corp Chief Executive Ken Thompson on Monday said the fourth-largest U.S. bank received no pressure from regulators to raise new capital or cut its dividend, but it did so to bolster its balance sheet for expected increases in credit losses. Earlier Monday, Wachovia announced plans to raise $7 billion of capital and lower its common stock dividend 41 percent. It also reported a surprise first-quarter loss.[7]

April 15 (Bloomberg) -- Wachovia Corp. Chief Executive Officer Kennedy Thompson said in May 2006 that it would take "huge unemployment and a huge downdraft in home values'' for the bank's acquisition of Golden West Financial Corp. to flop. Two years later, the $24.6 billion takeover of Oakland, California-based Golden West is the biggest cause of the fourth- largest U.S. bank losing half its market valuation, trimming its dividend by 41 percent and selling $7 billion of stock to boost its capital in the face of likely further credit losses.[8] In his first six years as Wachovia Corp.' s chief executive officer, G. Kennedy Thompson devoted himself to ridding the Charlotte, N.C., bank of its reputation for overly ambitious acquisitions at jaw-dropping prices. After making huge progress, Mr. Thompson finds himself right back where he started. Wachovia's announcement Monday that it is raising about $7 billion in capital, slashing its dividend by 41% and logging a loss of $393 million in the first quarter left many investors angry -- and Mr. Thompson feeling buyer's remorse over the $25 billion takeover of Golden West Financial Corp. in 2006. Asked in an interview if he regrets making the acquisition, Mr. Thompson replied: "Of course I do, given the result that we're seeing."[9] The United States fourth-largest bank Wachovia Corporation reported a 393 million U.S. dollars loss in the first quarter and has been forced to cut its dividend and seek a 7 billion U.S. dollar cash injection to make up its mortgage business. The Charlotte based bank said it would cut 12% of staff at its trading and investment banking division, the second time it has trimmed staff since early 2007. The bank blamed its troubles on the "severe deterioration" in the U.S. house market and global credit crunch. Wachovia said it was "deeply disappointed" by its performance, which it said had been caused by "the precipitous decline in housing market conditions and unprecedented changes in consumer behavior". Wachovia's troubles with the housing slump have been compounded by its 2006 acquisition of California-based Golden West Financial Corp., a 25 billion U.S. dollar deal whose timing CEO Ken Thompson has acknowledged "was not the best". "With the benefit of hindsight, it is clear that the timing was poor for this expansion in the mortgage business," Thompson wrote in a letter to shareholders in February.[10] The bank wrote down $2 billion in assets, pushing another $2.8 billion into loan-loss provisions -- losses the company expects to endure in relation to bad loans. "I'm deeply disappointed with our first quarter results," CEO Ken Thompson said, "but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path." The latest moves will do a great deal to help Wachovia keep its head above water, but the comments may sound insulting to shareholders who've had to endure Thompson's blundering acquisition of Golden West Financial, a California-based mortgage lender littered with ARM loans.[11]

Bad home loans in California caused a $393 million first quarter loss for Wachovia Corporation, the fourth largest U.S. bank. It is the bank's first quarterly loss in 7 years, said Wachovia chief executive officer Kennedy Thompson. Because of its losses, Thompson told Bloomberg the bank plans to increase its capital by selling $7 billion of stock and reducing its dividend.[12] Wachovia (NYSE: WB) will set aside $2.83 billion for credit losses, compared with $177 million in the first quarter of 2007. To save about $2 billion a year, the bank will reduce its quarterly stock dividend by 41 percent, to 37.5 percent of total stock ownership per share.[13] Wachovia also said it took write-downs of $2 billion during the quarter related to the credit crunch. It also set aside $2.8 billion to cover problem loans, up from $1.5 billion in the fourth quarter. To shore up its balance sheet, Wachovia plans to cut its dividend by 41 percent to 37.5 cents per share from 64 cents per share. It said the move is expected to save $2 billion annually in order "to build capital ratios and provide more operational flexibility." The bank also said it plans to cut more jobs in its corporate and investment bank, an area that has been hit by a drop in issuance of complex securities.[14] We believe the long-term benefit to shareholder value outweighs the disadvantage of the dividend reduction as we fortify our balance sheet against continued instability in the housing and capital markets." The bank says it will eliminate about 500 jobs in its corporate and investment banking unit, or roughly 12 percent of the division's workforce. Since the beginning of 2007, Wachovia has cut about one in four jobs in the global markets and investment banking group within its corporate and investment banking division. Wachovia is reducing its dividend to 37 cents per share from 64 cents per share, a move the bank (NYSE:WB) says will save $2 billion annually.[15] Thompson said a "precipitous decline in housing market conditions and unprecedented changes in consumer behavior" forced the bank to bolster reserves. "We're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path." Charlotte, North Carolina-based Wachovia cut its quarterly dividend 41 percent to 37.5 cents per share from 64 cents, preserving $2 billion of capital a year.[16] Analysts had expected a profit of 47 cents per share on revenue of $8.37 billion, according to a Reuters survey. The bank also sought to preserve about $2 billion in capital annually by cutting its dividend to shareholders by 41 percent to 37.5 cents per share. Chief executive Ken Thompson said "the most painful decision" was to cut the shareholder dividend but said doing so would be a long-term benefit as the company strengthens its balance sheet.[17]

Wachovia's $350m loss in the first three months of last year compared with a profit of $2.3bn in the same period last year. The bank said it would save $2bn by taking the "painful" step of cutting its first quarter dividend payment to shareholders by 41% to 0.375 cents per share. It also plans to tap existing and new shareholders for extra capital through a rights issue, although it did not make clear how much it hoped to secure. "I am deeply disappointed with our first-quarter results, but I am confident we are taking prudent actions in this challenging period to restore Wachovia to a more profitable path," said chief executive Ken Thompson.[18] Wachovia shares dropped $2.787, or 9.9 percent, to $25.06 after reporting a loss of 20 cents a share, compared with profit of $1.20 a share a year earlier, as a result of subprime-infected mortgage holdings. Chief Executive Officer Kennedy Thompson said he was "deeply disappointed'' after Wachovia posted its first quarterly loss since 2001 and lowered its dividend to conserve $2 billion of capital.[19]

"Our issuance of $7 billion is not simply to fill a hole in our balance sheet, but to increase sharply our capital ratios to provide the flexibility to deal with almost any conceivable circumstances that might develop in the future," the CEO said. Few on Wall Street conceived of these particular circumstances before Wachovia sped up its bad news, unveiling its first-quarter loss of 20 cents a share on Monday instead of waiting until Friday as scheduled. Analysts expected the bank to earn 40 cents a share for the quarter, a third of its $1.20 a share profit a year ago.[20] Especially since analysts had expected a profit in the first quarter for the fourth-largest U.S. bank. Before the bell Monday, Wachovia announced a $393 million first-quarter loss and a 41% cut to its dividend, and said it would raise $7 billion in capital. It also increased its credit reserves.[21] Wachovia Corp. (WB), after posting a $350 million loss for the first quarter and taking $2 billion in new write-downs, announced it will raise $7 billion in fresh capital through stock sales and cut its dividend by 41%, a consequence of the bank's ill-timed move into becoming a major mortgage player.[22] The first quarter loss was caused by $2 billion in asset write-downs and $2.1 billion in provisions against credit losses. The bank said that it will cut its dividend (currently $0.64) by 41 percent for a savings of $2 billion and will raise $7 billion through the sale of $350 billion in common and another $350 billion in preferred stock. In addition to losing a chunk of their dividend, common stockholders will have their equity in the company diluted by an approximate 14% discount from Friday's closing price.[23]

Wachovia reported an unexpected loss yesterday as a jump in foreclosures in California and Florida contributed heavily to a $4.4 billion (£2.2 billion) writedown in the first quarter. The fourth-biggest American bank reacted to the loss by announcing plans to raise $7 billion through a rights issue, cutting its quarterly dividend by 41 per cent and by eliminating 500 investment banking jobs. About $2.8 billion of the writedown related to "credit losses" on its portfolio of home loans, while the remaining $1.6 billion stemmed from declining valuations of securities such as collateralised debt obligations - complex pools of mortgage-backed bonds.[2] Investors withdrew heavily on Monday after Wachovia Bank ( WB ) reported its first quarterly loss since 2001, sending shares of the nation's No. 4 bank to close down 9%. The Charlotte, N.C., company also cut its dividend, set aside more money than previously expected for bad loans and said it needed to sell more shares to raise another $7 billion. That's its second trip to capital markets this year.[20] The stock was at $25.25 in recent premarket activity. The infusion represents Wachovia's second dip into the capital trough this year. The second round is a sign that banks' fortunes have continued to deteriorate over the past month. While some investors feel confident that the worst of the market crisis is in the rearview mirror, many observers believe that this is the beginning of the troubles for regional banks, which are likely to suffer from rising loan defaults, especially if the economy sinks into a deep recession. Wachovia's current problems stem largely from its $25.5 billion purchase of Golden West Financial Corp. nearly two years ago, a move that barreled the company into adjustable-rate mortgages near the peak of the housing market.[22] In January and early February, Wachovia added $8.3 billion in capital by issuing preferred stock and other securities to investors. "These securities strengthened our regulatory capital position and provide greater certainty that we are well positioned in 2008," chief executive Ken Thompson wrote in a letter to shareholders in February. Wachovia's troubles with the housing slump have been compounded by its 2006 acquisition of California-based Golden West, a $24 billion deal whose timing, Thompson has admitted, "was not the best." "With the benefit of hindsight, it is clear that the timing was poor for this expansion in the mortgage business," Thompson wrote in February. Golden West's loans were concentrated in California, one of the hardest-hit housing markets in the U.S. Wachovia said this month that it was considering halting the making of loans, including its signature Pick-A-Payment mortgage loans, in 17 California counties heavily affected by falling home prices and rising foreclosures.[24] Thompson was initially optimistic about the "transformative'' nature of the Golden West deal. The bank studied Golden West's successful 43-year history through California's cyclical housing economy, concluding its model of underwriting and then holding adjustable-rate loans with flexible terms, rather than selling them to secondary investors, was convincing, he said. "Wachovia said, `You are just too negative','' said David Hendler, an analyst at CreditSights Inc., about his firm's reports questioning option-ARMs. "Maybe Golden West was the best of the irrational lenders in the West Coast lending model, but it was bad money nonetheless.'' Wachovia now expects as much as eight percent of its $120 billion in so-called option adjustable-rate mortgages to default over the life of the loans.[8]

Golden West's loans were concentrated in California, one of the hardest-hit housing markets. Wachovia said this month that it was debating whether to halt lending in areas of California most affected by foreclosures and lower home prices. The bank increased its loan loss provision in first-quarter 2008 to $2.8 billion, up from $1.5 billion in the fourth quarter and $177 million in the first quarter of 2007.[25] Merrill Lynch and Citigroup have suffered combined losses of more than $43bn, although Swiss bank UBS has been worst affected, having to absorb a loss of $37bn. Wachovia has set aside $2.8bn to cover current and future losses stemming from the housing and credit crises, the bulk of these arising from loans which will not be repaid. This is almost double the $1.5bn it set aside in the final quarter of last year. Wachovia has significant exposure to the flaccid housing market through its mortgage lending subsidiary Golden West Financial Corporation, which it bought in 2006.[18] Golden West was a leading issuer of so-called option adjusted rate mortgages (ARMs) - loans that give borrowers the right to pay less than the full bill - with a portfolio now valued at roughly $120 billion. Wachovia's holdings of those loans are getting painful: Wachovia said its reserve for possible loan losses on Golden West's portfolio of Pick-a-Pay variable rate mortgages surged in the latest quarter to $1.1 billion, while late payments nearly doubled to 3.1% of the portfolio. While a possible $1.1 billion loss hardly seems newsworthy in this era of multibillion writedowns, the fact that 58% of Wachovia's option ARM portfolio is based in California is problematic.[26]

Largely because of pain from Golden West's mortgage business, Wachovia set aside $2.83 billion in the first quarter to cover credit losses and to reserve against future bad loanstwice the amount it set aside just one quarter ago.[27]

Wachovia's provision for credit losses jumped to $2.8 billion in the first quarter from $177 million a year earlier. The bank said it expects more losses ahead, too: It said it expects around $6 billion in additional reserves and charge-offs by the end of next year. The dismal numbers come just three months after executives insisted on a conference call with bondholders that an earlier round of capital raising - Wachovia raised $2.3 billion in December and $3.5 billion in January, though sales of preferred securities - made its dividend safe.[28] Wachovia earned $2.3 billion, or $1.20 per share, in the first quarter of 2007. Excluding merger-related and restructuring charges, the bank lost $270 million, or 14 cents a share in this year's first quarter.[25] Author: 123jump.com Staff 123jump.com Last Update: 2:42 PM EDT April 14 2008 Wachovia reported loss of $350 million or $393 million including preferred stock dividend or 20 cents per share compared to $1.20 a year ago or $2.30 billion. The bank also lowered its quarterly dividend to 37.5 cents and expects to preserve $2 billion of capital.[29] Wachovia Bancorp Inc. said Monday it swung to a $393 million, 20 cents per share first-quarter loss due to higher credit costs and the continued disruption in the capital markets. The banking company also announced plans to raise money and increase operational flexibility through a $7 billion public offering and a reduction in its quarterly dividend.[25] Wachovia set the tone Monday for what is expected to be an especially bloody first-quarter earnings season, which starts this week. Posting a surprise 20 cent a share loss, the Charlotte, N.C., bank announced it would slash more jobs in its investment banking division, dramatically increase reserves for loan losses and return to the markets for the second time this year to raise new capital. Oh, and it's cutting its dividend. Across the banking industry, profits are slumping or swinging to losses as the credit crisis spreads from big Wall Street firms to the regional banks that depend more on traditional lending for their revenues.[30] Shares in Wachovia fell $2.26, or 8.1 percent, to $25.55 on Monday. It's the second time this year the Charlotte-based bank has gone to the well for cash, a move analysts say more banks large and small will do to brace themselves against further loan losses. "This isn't surprising and we'll see more of it," said Donn Vickrey, an analyst with Gradient Analytics Inc. in Scottsdale, Ariz. Even larger outfits, like Citigroup Inc., the No. 1 U.S. bank by assets, may have to have to raise more cash by selling additional stakes in themselves to outside investors or by slashing their dividends.[14] Washington Mutual Inc., the largest U.S. savings and loan, got $7 billion last week 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, data compiled by Bloomberg show. Seattle-based Washington Mutual reported a first-quarter loss of $1.1 billion, cut its dividend and announced plans to eliminate 3,000 jobs.[31] About $2.8 billion in option-ARMs were more than 90 days late at Wachovia on Dec. 31, up from $675 million a year earlier. Washington Mutual, Countrywide Financial Corp. and other large option-ARM lenders have reported rising levels of delinquencies this year, sparking concern that Wachovia's late payments would also escalate. Wachovia's late payments and losses from the loans have been lower than industry averages through the end of 2007, prompting Chief Risk Officer Donald Truslow to say in February that the bank's mortgage business might remain profitable even if loans losses quadrupled this year. Wachovia also faces higher losses on its mortgage-backed securities and leveraged loans, along with mounting problems in its commercial real estate, home equity and construction loan businesses, Cassidy said. "These investors in Wachovia, if the reports are true, are making assumptions about what the losses are going to be, but no one really knows what they will be,'' Cassidy said.[5] Non-performing assets, including loans held for sale and foreclosed properties, totaled $8.4 billion, or 1.7 percent of loans, widening from 0.4 percent a year earlier. The allowance for future loan losses was 78 percent of its total nonperforming assets the end of the quarter, down from a ratio of 189 percent a year earlier. "Wachovia is now looking almost as bad as Washington Mutual on the mortgage side,'' said David Hendler, an analyst at CreditSights Inc. "This shows investors have to be more cautious and not take management's word for granted.''[31]

Losses from Pick-a-Pay loans totaled $1.1 billion in the first quarter alone, said Wachovia, accounting for more than one-fourth of the $4.1 billion in asset write-downs and loan-loss provisions that Wachovia reported. In its earnings report, Wachovia announced it would raise $7 billion from the sale of common and preferred stock in order to offset present and future losses that Wachovia says will continue racking up through 2009.[32] NEW YORK (CNNMoney.com) -- Wachovia Chairman and CEO Ken Thompson defended plans to raise $7 billion in capital through a stock offering announced Monday, citing fears of a protracted downturn in the housing market and rejecting suggestions that the sale was done at the behest of regulators. During a conference call, Thompson told analysts that the stock sale, which would include an equal mix of both common and preferred shares, was done to gird the company's balance sheet against future mortgage-related losses. "This was not simply to fill a hole in our balance sheet," said Thompson[3] In response to those heavy losses, and in anticipation of many more to come, Wachovia said it will raise $7 billion in fresh capital by selling shares of both common and preferred stock. In a conference call with investors, the company said it expects those offerings "to be substantially oversubscribed."[33]

Wachovia ( WB, Fortune 500 ) swung to a surprise first-quarter loss and set plans to raise $7 billion in capital by selling common and preferred stock. Wachovia also cut its quarterly dividend by more than 40%, just two months after executives made a point of saying the payout was safe. Most jarring was Wachovia's decision to boost its reserves for future loan losses by billions of dollars.[28] April 14 (Bloomberg) -- Wachovia Corp., the fourth-largest U.S. bank, sold $7 billion of stock and cut the dividend after bad home loans in California triggered an unexpected first-quarter loss.[31] Wachovia Corp. ( WB ), the fourth-largest U.S. bank, stunned investors yesterday (Monday) by posting a surprise first-quarter loss, announcing a dividend cut and revealing plans to raise $7 billion in capital.[34] NEW YORK (Reuters) - Wachovia Corp (WB.N: Quote, Profile, Research ) on Monday posted a surprising first-quarter loss as credit problems soared and said it would cut its dividend and raise $7 billion in capital.[16]

The declining housing market and the credit crunch put Wachovia Corp. in the red in the first quarter. Now the company will cut more jobs, reduce its dividend and raise $7 billion through a share sale.[35] CHARLOTTE, N.C. (AP) — Wachovia Corp. is getting a lesson in "timing is everything." The nation's fourth-largest bank reported a $393 million first quarter loss and has been forced to cut its dividend and seek a $7 billion cash injection to make up for a poorly timed expansion of its mortgage business. The company also said it plans to cut 500 jobs in its corporate and investment bank.[14]

NEW YORK - Wachovia Corp., the fourth largest U.S. bank, reported a first quarter loss on Monday and said it would strengthen its balance sheet by cutting the shareholder dividend and raising $7 billion in capital.[17] Shares of national banks fell Monday after Wachovia Corp. swung to a loss in the first quarter and said it would raise $7 billion and slash its dividend.[1] A Wachovia branch bank is shown in Charlotte, N.C., Monday, April 14, 2008. Wachovia will slash its dividend and raise $7 billion in a share sale after reporting a surprising first-quarter loss Monday of $350 million before preferred dividends.[17]

Thompson had in January promised the dividend was safe. It intends to raise $7 billion through public offerings of common and convertible preferred stock. It will offer 145.8 million shares of common stock at $24 each, which should raise in the neighborhood of $3.5 billion. The bank also said it plans to cut 500 jobs within its corporate and investment bank, as the issuing of complex securities continues to dry up.[21] "I'm deeply disappointed with our first-quarter results," said G. Kennedy Thompson, Wachovia's chief executive, on a conference call Monday. "I know these actions aren't without cost. I wish they weren't necessary, but they are." Wachovia cut its dividend by 41%, saving $2 billion in order "to build capital ratios and provide more operational flexibility." It is also selling $7 billion in new shares, its second share offering of the year.[30] Wachovia's new common shares will be sold at $24 per share, a 14% discount to Friday's closing price. Adding insult to injury, Wachovia already raised $8.3 billion in fresh capital earlier this year. Its quarterly dividend will be slashed 41% to $0.375 per share, which management expects will save the company $2 billion per year.[11] Net charge-offs (loans it doesn't expect to be repaid) quintupled from a year earlier, reaching $765 million. To conserve $2 billion a year in capital, Wachovia is slashing its quarterly dividend 41%, from the current 64 cents all the way down to 37.5 cents per share.[34] According to Thomson Financial, Wall Street analysts had expected Wachovia to earn 40 cents per share. Wachovia said cutting its quarterly dividend will save $2 billion of capital annually "to build capital ratios and provide more operational flexibility."[36]

The quarterly dividend reduction, to 37.5 cents a share from 64 cents, will preserve about $2 billion in capital, according to a report today from analyst Brian Foran at Goldman Sachs Group Inc. Wachovia also plans to cut 500 investment banking jobs.[37] The quarterly dividend was cut to 37.5 cents a share from 64 cents, which will preserve about $2 billion in capital, according to a report today from analyst Brian Foran at Goldman Sachs Group Inc. With the new funds, the bank will have raised about $13 billion since the credit crunch began, Foran wrote.[31]

The world's biggest banks and securities firms have raised more than $140 billion to replenish capital after $245 billion of writedowns and credit losses since the beginning of 2007. A loss may pressure Wachovia to cut its dividend, a move predicted on March 25 by Merrill Lynch & Co. analyst Edward Najarian.[5] Analysts had expected Wachovia to post a profit of $0.40. The real punch for Wachovia's shareholders, though, was the added announcement that the bank cut its dividend sharply to preserve capital and announced concurrent common and convertible preferred stock offerings that raised $7 billion in aggregate.[38] Shareholders in Charlotte, N.C. -based Wachovia ( WB, Fortune 500 ) were rocked Monday by a nasty one-two punch: a sudden (and dilutive) sale of common and convertible preferred stock, and the bank's first quarterly loss since 2001. Wachovia swung to a $350 million loss in the first quarter, reversing the year-ago $1.2 billion profit, as the bank posted weak numbers across its businesses.[26]

Investors reacted by sending Wachovia shares down more than 10 percent in trading. "I'm deeply disappointed with our first-quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," said Chief Executive Ken Thompson. The Charlotte, North Carolina-based bank lost $350 million in its first quarter, or 20 cents per share.[17] Wachovia (nyse: WB - news - people ) shares tumbled 8.1%, or $2.26, to close at $25.55 on Monday. This is not the first time Wachovia has passed the hat. Wachovia Chief Executive Ken Thompson said that although he's disappointed with the company's first-quarter results, which he blamed on "the precipitous decline in housing market conditions and unprecedented changes in consumer behavior," he believes the bank's "prudent and appropriate actions" will help boost profitability going forward. "The most painful decision," he said, "was to reduce the dividend because it adversely affects our shareholders.[21]

The bank had $783.6 billion of assets at the end of the first quarter. "I'm deeply disappointed with our first quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," said Ken Thompson, Wachovia CEO. "The precipitous decline in housing market conditions and unprecedented changes in consumer behavior prompted us to update our credit reserve modeling and rely less heavily on historical trends to forecast losses.[35] Wachovia thinks the housing decline is now half over with further credit losses ahead, Chief Risk Officer Donald Truslow said. Smith said the bank raised more than $7 billion yesterday selling common and preferred shares mainly to its largest investors.[8] Last week, Seattle-based Washington Mutual Inc. said that a consortium of investors led by TPG would invest $7 billion into the struggling thrift. "There's a number of banks out there that are really high-risk for this same thing," Vickrey said. Wachovia's troubles with the housing slump have been compounded by its 2006 acquisition of California-based Golden West Financial Corp., a $25 billion deal whose timing, Thompson has acknowledged, "was not the best." "With the benefit of hindsight, it is clear that the timing was poor for this expansion in the mortgage business," Thompson wrote in a letter to shareholders in February.[14] At the height of the housing boom in 2006, Wachovia management believed that all that glittered was in the Golden State, and the bank executed a $24.6 billion takeover of Oakland-based Golden West Financial, a mortgage lender with lots of business in California.[20]

Several have already raised capital, or cut dividends and jobs. Wachovia has suffered from its $24.2 billion purchase of mortgage lender Golden West Financial Corp in 2006, near the peak of the U.S. housing boom.[39] The fourth-largest U.S. bank is the latest major lender battered by the global credit crunch, which has caused loan losses and write-downs to mount. It has also been hurt by Chief Executive Ken Thompson's ill-timed, $24.2 billion purchase in 2006 of adjustable-rate mortgage lender Golden West Financial Corp.[16] The bank also announced plans to cut investment banking positions by 12 percent during the second quarter. This will bring job losses over the last year to about 25 percent of the bank's employers. The bank has not only been hit by a high rate of delinquencies in mortgages, especially in California, but by losses in its auto, credit card, and home equity businesses. It may face problems in its commercial real estate division where it holds about $12 billion in construction loans.[23] The loss is primarily the result of setting aside $3.5 billion during the quarter to cover loan losses. Because of the first-quarter losses and expected continued losses at Washington Mutual tied to mortgage defaults, Piper Jaffray analyst Robert Napoli cut his 2008 and 2009 estimates for the bank.[1] Especially hard hit: banks concentrated in areas of the country most sharply feeling the housing downturn. Video: Citi And Banks Washington Mutual (nyse: WM - news - people ), the largest U.S. thrift, already announced its greater than expected disappointment, saying last week it would lose $1.1 billion after setting aside billions for anticipated loan losses. It cut its dividend to 1 cent and went hat in hand to Texas Pacific Group, which agreed to give it a $7 billion investment.[30] The most troubling aspect of the Wachovia report is the $2.8 billion the bank set aside for expected losses from loans it has made to consumers and businesses. The news follows announcements last week by General Electric, considered a bellwether for the economy with its diverse businesses, and Washington Mutual, a large mortgage lender, that they would significantly increase their loan-loss provisions as economic conditions deteriorate.[40]

Wachovia said in February it expects to set aside more money for bad loans, although it did not give a specific amount. The company took more than $3.2 billion in write-downs in the second half of 2007, losses tied mostly to the housing market and the falling value of its collateralized debt obligations. CDOs are a kind of security often backed by subprime mortgage loans — or those given to customers with poor credit histories.[24]

Brian Foran of Goldman Sachs said Wachovia will gain $11 billion in cash over the next two years, enough to cover losses from the company's loans. He lowered his profit estimates for the next three years, and trimmed his price target to $32 per share from $33.[14] The company said it made a loss of $350 million, or 20 cents a share compared to a profit of $2.3 billion, or $1.20 a share in the same quarter a year ago. Wachovia said its loss came in at $393 million after paying out a preferred dividend.[41] The net loss was $350 million, resulting in a loss of 20 cents per share, Wachovia said. It compared with a year-earlier profit of $2.3 billion, or $1.20 per share.[16] The Charlotte, N.C. -based bank reported a net loss available to common shareholders of $393 million, or 20 cents per share, compared with a year-earlier profit of $2.3 billion, or $1.20 per share.[34] The Charlotte, N.C. -based bank recorded a net loss of $350 million and a loss per share of 20 cents, compared with net income of $2.3 billion and earnings of $1.20 a share in the first quarter of 2007.[35] Earlier in the day, the Charlotte, N.C. -based bank said it lost $393 million, or 20 cents per share, during the first quarter. It earned $2.3 billion, or $1.20 per share, during the same period a year ago.[1]

Wachovia Corp. recorded a net loss of $350 million, or 20 cents per common share, for the first quarter and plans to cut 500 positions, bank officials said Monday morning in a media briefing.[13] North Carolina-based Wachovia Corp. (WB 25.31, -2.50) was the focal point in the financial sector today. Its stock declined 9.0% after the company reported a first quarter loss of $0.14 per share.[38]

Wachovia will lower the quarterly common stock dividend to 37.5 cents per share from 64 cents per share, a savings of $2 billion annually.[25] Now, Wachovia wants to raise $7 billion by selling common and preferred stoc, $3.5 billion of each. It will also save another $2 billion a year by cutting its dividend 41%. This share sale will hit Charlotte hard: Just think, 20,000 employees work for Wachovia, they will lose stock value and possibly their jobs.[42] Wachovia, the fourth-largest U.S. bank, dropped the most in 17 years after cutting its dividend and announcing plans to raise $7 billion to mend capital lost from mortgage losses.[19] Thompson, however, rejected the notion that the dividend cut and the planned stock sale was done under pressure from federal regulators, who have been keeping a close eye on the capital levels of banks and other large financial services firms in the wake of last month's near collapse of Bear Stearns ( BSC, Fortune 500 ). "This was a decision we made that the right thing to do at this point was to take on a lot of capital and get prepared," Thompson said during a question and answer session on the conference call. What Thompson and his fellow Wachovia executives seem to be preparing for is further weakness in the U.S. economy and rising loan losses, driven in large part by its mortgage portfolio.[3] "I would say that management made a huge error in buying Golden West at the peak of the market," says RBC Capital Markets analyst Gerard Cassidy. "They were unable to see the forest through the trees in that transaction; they wanted to get into California in a big way, and this gave them that entree. Unfortunately they came upon it at the worst time possible." The tarnish from Golden West isn't the only thing that was worse than expected, and it's the long litany of disappointments that has the Street concerned. After a year in which shares lost nearly half their value through Friday, there was hope that the damage was at least quantified, if not contained. Analyst Andrew Marquardt, at Fox-Pitt Cochran Caronia Waller, wrote Monday that he was surprised by the size of the potential capital raise, which was nearly twice his estimate of capital at risk. Morningstar's Jaime Peters put the stock under review, and said it's not clear yet how the new offering dilutes the value of current shareholder stakes. She added that things look like they'll get worse for Wachovia, which must keep building its allowance for loan losses as it tries to deal with the rapid deterioration in its option-ARM portfolio, as well as losses from collateralized debt obligations, commercial mortgage-backed securities, leveraged loans, and subprime residential mortgage-backed securities.[20] The purchase of California-based Golden West, which pioneered mortgages that allow borrowers to choose how much to pay, significantly boosted Wachovia's presence in New Jersey. Wachovia had $5.66 billion in these so-called Pick-a-Pay loans outstanding in New Jersey at the end of March, ranking the state third behind California and Florida for those loans, which are going into default at a rate three times higher than traditional mortgages.[4]

Wachovia has suffered after buying a leading home loan lender two years ago. Its $24 billion purchase of California-based Golden West gave Wachovia access to the states once booming housing market.[17] Wachovia's net income last year slid to $6.3 billion from $7.7 billion in 2006, weighed down by a huge leap in the money Wachovia set aside to cover bad loans. Wachovia executives now acknowledge they erred with the Golden West deal.[22]

At the end of the first quarter, 3.8% of Wachovia's "Pick-a-Pay" mortgages were on nonperforming status, up from 0.8% a year earlier. Such loans allow borrowers to choose how much they want to repay each month, with any unpaid interest tacked onto the loan amount. Herb Sandler, the former Golden West co-CEO who sold his company to Wachovia, says he is frustrated and disappointed that the lender that he built is getting blamed for dragging down Wachovia. He says the huge losses that Wachovia is suffering are in part a result of the bank setting aside more reserves than it needs to. "They've just reserved the hell out of our portfolio," Mr. Sandler said in an interview. That could set the stage for "terrific upside" if Wachovia's current forecasts prove to be overly pessimistic.[9] For the quarter, a net loss of $393 million was realized compared to income of $2.3 billion in the first quarter of 2007 as loans losses in mortgage securities were $2 billion.[29] Wall Street's pain is also enduring for another quarter. Merrill Lynch (nyse: MER - news - people ) and Citigroup (nyse: C - news - people ) are expected to post losses per share of $1.90 and 95 cents, respectively, and both are expected to have billions more in write-downs of mortgage securities and loan holdings.[30]

The reversals come just two weeks after Wall Street staged an improbable April Fools Day rally on the heels of Lehman Brothers' ( LEH, Fortune 500 ) $4 billion sale of convertible preferred stock. The reaction to that dilutive maneuver, and a sharp rise in UBS ( UBS ) shares even after the Swiss bank announced its own $15 billion capital-raising plan, had some observers venturing that perhaps the worst of the financial sector meltdown was behind us. It's now clear that the pain will continue. With big banks including Citi ( C, Fortune 500 ), Bank of America and JPMorgan Chase due to post their own first-quarter numbers in the next week, multibillion-dollar writedowns of subprime-related securities holdings will grab lots of headlines. Investors will be keeping a closer eye on credit provisions, because they offer the first glimpse of how many more capital-raising efforts may be necessary. BofA and JPMorgan will come under particular scrutiny, because they - unlike Citi - have been seen up to this point as having managed their mortgage exposure fairly well.[28] NEW YORK, April 14 -- Wachovia Bank rattled Wall Street on Monday by reporting a surprising $350 million loss, dashing the hopes of investors looking for a sign that the worst of the credit crunch was behind them. The first-quarter results from Wachovia, the nation's fourth-largest bank, highlighted the spreading damage from the credit crisis and raised the prospect of further disappointments later this week, when several other major financial institutions also will release their earnings.[40]

The bad news at Wachovia marks the third time in the past week that investors have gotten a bracing look at the problems in the finance sector. Seattle-based Washington Mutual agreed last Tuesday to raise $7 billion by selling shares at a steep discount to a group led by private equity firm TPG. On Friday, General Electric ( GE, Fortune 500 ) - a conglomerate with a formidable finance arm - posted disappointing first-quarter earnings, saying frozen debt markets made it impossible for the firm to meet its asset-sale targets.[28] Wachovia said it plans to raise a total of $7 billion in capital by issuing new shares to the public and convertible preferred stock.[41]

An executive at the bank said it expects "further robust provisioning in 2008 and 2009," a reflection of the bank's forecast that trouble in the housing market will continue through at least the middle of 2009. In addition to the planned raising of $7 billion in capital, the bank also reduced its quarterly dividend from 64 cents to 37.5 cents, a decision that Wachovia said will free up $2 billion in cash annually.[33] "The precipitous decline in housing market conditions and unprecedented changes in consumer behavior prompted us to update our credit reserve modeling and rely less heavily on historical trends to forecast losses." Wachovia also announced plans to reduce its dividend and raise $7 billion through a stock sale.[13] The IMF has warned that losses from the credit crunch could top $1 trillion. Wachovia said it was "deeply disappointed" by its performance, which it said had been caused by "the precipitous decline in housing market conditions and unprecedented changes in consumer behaviour". It is slashing its dividend after making a $350m quarterly loss and plans a rights issue to raise $7bn in cash.[18]

Wachovia said it set aside $2.83 billion for credit losses - that's up from $177 million a year earlier and nearly twice the $1.5 billion the banking firm set aside in the fourth quarter.[34] The company is bracing for continued loan losses into next year, saying it would set aside up to $1 billion in anticipation. As recently as last fall, Wachovia was seen as a potential savior, particularly for Merrill Lynch, which is said to have approached it about a merger as the losses mounted on its exposure to credit derivatives.[30] Wachovia also set aside $2.8 billion in the quarter for potential loan losses, stemming largely from residential mortgages in hard-hit California and Florida.[43] In last year's fourth quarter, Wachovia's net income plunged 98 percent because of a $1.7 billion write-down of some holdings — primarily assets backed by subprime mortgages — and $1.5 billion set aside to cover bad loans.[24] Loans and other assets that have stopped performing as expected soared to $8.37 billion, or 1.74 percent of total assets, up from $1.79 billion, or 0.42 percent, of total assets a year earlier. Wachovia and other lenders say they are seeing a new phenomenon, namely the tendency of borrowers to simply walk away from houses when they owe more than the house is worth. "When they have lost the equity in their home and there has been some event to disrupt their cash flow. they are much more apt to default" than those who still have some equity in their home, regardless of credit scores, said Don Truslow, Wachovia's chief risk officer. A client of Bucks County real estate agent Maggie Pollich was tempted to walk when he lost his job in January just 10 months after moving to Feasterville from Michigan.[4]

Wachovia lined up more than a dozen major institutional investors to participate in the deal, according to a person familiar with the matter. That is "certainly a vote of confidence" in Mr. Thompson, says Gerard Cassidy, an analyst with RBC Capital Markets. "the company was led under his leadership into very aggressive, high-risk areas and now they're all blowing up." Another trouble spot: Wachovia has more than $12 billion of loans tied to the residential construction business -- an area that is expected to endure a steep rise in defaults.[9] Mr. Thompson joined a Wachovia predecessor in 1976 and climbed the ranks. After becoming CEO, he won praise even from longtime Wachovia critics for improving customer service and controlling the company's ravenous acquisition appetite. Wachovia still made big deals, but analysts and investors generally concluded that Mr. Thompson was unusually good at making them pay off. "He spent a lot of time making necessary changes to reposition the company," said Greg Fleming, president of Merrill Lynch & Co. and an adviser on Wachovia predecessor First Union Corp.' s purchase of the former Wachovia Corp. in 2001. Before Monday's bad news, Mr. Thompson had repeatedly assured Wall Street that Wachovia had adequate capital and wouldn't cut its dividend payment. With market rumors that Wachovia would cut its dividend -- speculation that Wachovia officials denied -- "it's a little disingenuous for people. to say this is a great surprise that Wachovia is cutting its dividend," insists Mr. Smith, the Wachovia director.[9]

The risks at the time were played down, but the transaction had been openly questioned by Wall Street analysts as the housing market appeared to be peaking. There is a direct correlation to Wachovia'''s losses for the first quarter of this year, $393 million, and the impending foreclosure boom.[44] Wachovia, based in Charlotte, posted a $350 million net loss in the first quarter before preferred dividends, compared with a $2.3 billion gain a year ago. The net loss for common stockholders, which includes those dividends, was even greater, $393 million.[40] Wachovia swung to a first-quarter net loss of $393 million, or 20 cents a share, from a profit of $2.3 billion, or $1.20 a share, a year earlier.[4] Wachovia's loss for the quarter works out to 20 cents a share. That compared with profit of $2.3 billion, or $1.20 a share, a year earlier.[14]

Wachovia announced a first-quarter loss of $393 million, or $0.20 per share, compared to a gain of $2.3 billion, or $1.20 per share, in the same period last year.[11] The first-quarter net loss was $350 million, or 20 cents per share, compared with a year-earlier profit of $2.3 billion, or $1.20 per share.[39]

The loss of $393 million, or 20 cents a share, compared with earnings of $2.3 billion, or $1.20, a year earlier. Chief Executive Officer Kennedy Thompson, 57, said he was "deeply disappointed" by the first quarterly loss in almost seven years.[37]

The mean estimates of analysts surveyed by Thomson Financial were for earnings of 40 cents a share on revenue of $7.98 billion. "I'm deeply disappointed with our first-quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," Thompson said.[22] Analysts surveyed by Thomson Financial had expected Wachovia to earn 40 cents per share on revenue of $7.98 billion.[14] Analysts surveyed by Thomson Financial were predicting, on average, a profit of 40 cents per share for the first quarter. "I'm deeply disappointed with our first quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," Thompson said.[25] Wachovia's poor results came as Bear Stearns, which is preparing to be acquired by JPMorgan, revealed that its profits also fell short of expectations in the first quarter, with its net income declining by 79 per cent to $115 million, on the back of a 40 per cent dip in revenues to $1.48 billion.[2]

The bank had $783.6 billion in assets at the end of the first quarter. During a conference call, Wachovia told investors it plans to eliminate 500 jobs in its markets and investment banking unit during the second quarter.[13] Since October, Wachovia has cut more than 260 jobs in corporate and investment banking, which had about 6,100 employees as of Dec. 31. Its share sale will involve 145.8 million shares of common stock at $24 each, raising roughly $3.5 billion.[14] The bank had raised $3.5 billion in a preferred stock sale just two months ago. The bank also said Monday it will cut its dividend 41 percent and lay off about 500 people in its corporate and investment banking business, or 17 percent of the unit's workforce.[43]

Wachovia, the fourth-largest bank in the U.S., will cut jobs after posting a loss and cutting the value of its mortgage-backed assets by $2bn ('1bn). The lender said it would cut 12% of staff at its trading and investment banking division, the second time it has trimmed staff since early 2007. The bank blamed its troubles on the "severe deterioration" in the U.S. house market and global credit crunch.[18] Wachovia fell the most intraday since the 1987 crash in New York trading after the bank disclosed plans to sell shares at 14 percent less than last week's closing price and cut 500 investment banking jobs, mostly in New York and Charlotte.[31] Wachovia shares closed down $2.26, or 8.1 percent, to $25.55 on the New York Stock Exchange. The stock has slumped 32.8 percent this year, more than twice the 24-member Philadelphia KBW Bank Index's 14.7 percent decline.[6] Wachovia shares tumbled 8.1%, or $2.26, to $25.55 in New York Stock Exchange composite trading Monday -- and are down 53% in the past year.[9] Wachovia shares fell 8.13 percent, or $2.26, to close today at $25.55 on the New York Stock Exchange.[4]

Wachovia's stock has traded between $23.77 and $56.90 per share over the past year. It fell 8.13 percent in Monday trading to close at $25.55 per share, down from Friday's close of $27.81 per share.[15] Wachovia Corp. declared a quarterly common stock dividend of $0.375 cents per common share, payable on June 16, 2008, to stockholders of record on May 30, 2008, 41% lower than in the same period a year ago.[29]

In the same period last year, Wachovia earned $2.3 billion, or $1.20 per share.[15] For first-quarter 2007, Wachovia had earnings of $2.3 billion, or $1.20 per share.[13]

The bank had earned $2.3 billion - $1.20 per share - in the first quarter in 2007.[23] The nation's fourth largest bank announced Monday that it lost $350 million in the first quarter or $.20 per share, a loss that analysts had not expected.[23]

The news comes on the same day the Charlotte-based bank has reported a first-quarter loss of $393 million, or 20 cents per share.[15] Excluding items, the loss was $270 million, or 14 cents per share. On that basis, analysts on average expected a profit of 47 cents per share, according to Reuters Estimates.[16]

The consensus estimate from analysts was for Wachovia to post a profit of 48 cents a share on revenue of $8.37 billion, according to Reuters Estimates.[34] California's real estate crisis is weighing on banks with a big lending presence there, including Wachovia, Bank of America (nyse: BAC - news - people ), Citi and Wells Fargo. Analysts had expected Wachovia to say it had profits of 40 cents a share for the period, and they expected that announcement to come several days from now. Wachovia moved up its earnings report after a weekend negotiating a new way to shore up its sagging capital.[30] Wachovia's shares plunged $2.26 each, or 8.13%, to close at $25.55. They traded as low as $24.65. Because yesterday was the first day in what's expected to be a big week for corporate earnings reports, the markets punished financial shares, sending the Standard & Poor’s Financial Sector down 2.4%. In fact, financial shares in the Standard & Poor's 500 Index skidded for the fifth-straight day, reaching their lowest point since March 17, when the group of banks, brokers, insurers and real-estate investment trusts dropped to an almost five-year low, Bloomberg News reported.[34]

Once you throw out the kitchen sink, what else can you use to fuel the subprime fire? Just months after Wachovia (NYSE: WB ) padded its balance sheet with $8.3 billion of new capital, the aftershocks of its ill-timed purchase of Golden West Financial continue to pull the troubled bank down the tubes.[11] Inflicting damage was Wachovia's $24.2 billion acquisition of adjustable-rate mortgage lender Golden West Financial Corp. in 2006, a move that was made at the pinnacle of the U.S. housing boom.[34] Noninterest income fell to $3.1 billion from $3.7 billion. Wachovia's mortgage woes have been compounded by its 2006 acquisition of California-based Golden West Financial Corp. for $25.5 billion.[25] Thompson's $24.2 billion purchase of adjustable-rate mortgage lender Golden West Financial in 2006, at the height of the real estate bubble, didn't help Wachovia's financial standing. "With the benefit of hindsight, it is clear that the timing was poor for this expansion in the mortgage business," Thompson wrote in a letter to shareholders in February.[21] Thompson has told shareholders the $24 billion purchase of home lender Golden West Financial Corp. in 2006 was mistimed, and that Wachovia now faces "a moment of truth.''[5]

For instance, in May 2006, Wachovia made a big bet on the California housing market when it acquired Golden West Financial for $25.5 billion.[44] The most compelling reading, however, concerns the former Golden West Financial, which Wachovia acquired in 2006 for $24.6 billion.[26]

Failures from Wachovia's controversial Pick-A-Payment mortgages rose to $1.1 billion, roughly twice as much as at the end of 2007. Some commentators, such as Portfolio.com Market Movers’s Felix Salmon, suggest Wachovia will have to write down most of the value of Golden West itself. Which just goes to show, investors may have been right all those years ago.[27] The company's problems began when it purchased Golden West a California bank and mortgage lender for $25.5 billion two years ago.[23] Wachovia shareholders everywhere will be effected, but here in Charlotte, where 20,000 work for the bank, the bad news could be a blow to our local economy. A major part of Wachovia's woes is the fact that they bought a mortgage company. Two years ago, Wachovia CEO Ken Thompson said he had bought a crown jewel in mortgage company, Golden West Financial. Now, with foreclosures ravaging local neighborhoods and the national economy, he has admitted the bad timing. Something it seems others saw before him.[42]

Wachovia purchased Golden West for a whopping $25 billion two years ago, near the peak of the real estate bubble that now haunts financial firms.[11] The bank's market value has dropped about 50 percent since buying Golden West Financial Corp. in 2006 for $24.6 billion at the peak of the housing boom.[31]

First-quarter revenue dropped nearly 5 percent between 2007 and 2008, to $7.9 billion. Officials for the Charlotte, N.C. -based bank blamed a declining housing market and tapering consumer spending for its poor performance, which failed to meet Wall Street expectations. "I'm deeply disappointed with our first-quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," said CEO Ken Thompson in a released statement.[13] The bank posted a first-quarter loss of $393 million on Monday. "I'm deeply disappointed with our first-quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," CEO Ken Thompson said on a conference call with analysts Monday morning.[43]

Wachovia swung to a first-quarter loss of $393 million from a year-earlier profit of $2.3 billion.[9] The $393 million loss compared with profit of $2.3 billion a year earlier, Wachovia said in a statement today.[31]

Net charge-offs soared to $765 million, and nonperforming assets more than quadrupled to $8.4 billion. Its corporate and investment banking operations suffered a $77 million loss, compared with a profit of $550 million a year earlier. This included $1.6 billion of write-downs, largely for structured products, including collateralized debt obligations. It wrote down $521 million tied to commercial mortgages, $339 million for subprime mortgages, $309 million for loans to fund corporate buyouts, $251 million for consumer mortgages and $144 million for non-subprime debt.[21]

Wachovia conceded total losses from Pick-A-Pay loans could eventually amount to a staggering 7% to 8% of the loans' combined value, a range of $8.5 billion to $9.7 billion - meaning the bank, and its shareholders, will likely be coping with Pick-a-Pay losses for years to come.[32] A big factor in the loss was a $2.8 billion provision for loan losses, reflecting deteriorating housing markets in California and Florida and changes in the way the bank predicts losses.[4] Revenue declined 5 percent to $7.9 billion, and the bank set aside $2.8 billion for credit losses, mainly because of deterioration in the housing markets of California and Florida.[37] Wachovia set aside $2.8 billion for credit losses in the three months ended March 31, mainly because of deterioration in the housing markets of California and Florida.[31]

Wachovia set aside $2.83 billion for credit losses, and its investment bank took $1.56 billion of write-downs.[16]

Wachovia set aside $422 million more for credit losses because of "rapid deterioration'' in consumer real estate and auto loans, especially in California and Florida, where prices are falling and foreclosures are increasing. The profit decline and credit losses, along with "unprecedented consumer behavior,'' prompted Wachovia to increase its assumptions about how many of its option-ARM home loans will go bad.[31] Late payments on Wachovia's option-ARM loans were 3.1 percent, double the previous record during the early 1990s real- estate recession in California, Moody's Investors Service analyst Sean Jones said in a report today. The annualized rate of losses was four times the previous high, he said. Morgan Stanley analyst Betsy Graseck said Wachovia's estimate of a 7 percent to 8 percent loss on its option-ARM loans may be optimistic. "We don't think this reflects a `kitchen sink' as we expect housing values to continue to sharply deteriorate,'' said Graseck, who rates the company at "underweight.'' Wachovia said the estimate is its best at this time, though it shouldn't be viewed as a "worst-case scenario,'' Chief Risk Officer Donald Truslow told reporters on a conference call.[31] Earnings reports are expected in the next few days from dozens of other financial players large and small--including banking giants Citigroup ( C ) and JPMorgan Chase ( JPM ). Some analysts and investors are urging banks to report the maximum losses this quarter, in an effort to put the worst of the housing and credit crisis behind them. Wachovia's pessimism could force other banks to also prepare for mortgage losses by shoring up their capital. Banks large and small are "going to be building those reserves," Peters says.[45] "Results will be very weak to disastrous, depending upon each entity's exposure to the troubled credit areas." Cassidy and others said the problems facing Wachovia and the wider commercial banking industry are different from those that struck Wall Street investment banks beginning last year. Those troubles, which ultimately led to the near-bankruptcy of Bear Stearns, are rooted in complex and hard-to-trade securities backed by subprime mortgages that had to be marked down to reflect their market value. Many analysts say these issues are coming to an end as the firms write down assets by the billion and get injections of capital from sovereign wealth funds.[40]

Like Wachovia, Washington Mutual also announced a plan to raise new capital. The bank is raising $7 billion to improve its capital base.[1] The bank will raise $7 billion in new capital by selling common and preferred stock. Washington Mutual (NYSE: WM ) announced a similar plan last week to shore up its balance sheet.[11] To prepare for even more losses, the bank said it will seek $7 billion to $8 billion in new capital, new stock that is certain to dilute current shareholders' stakes.[45]

To shore up the dwindling cash assets on its balance sheet, Wachovia Corporation announced on Monday that it would be issuing approximately $7 billion in new stock in a public offering.[27] Wachovia said it will raise $7 billion through offerings of common stock and perpetual convertible preferred stock.[43]

Wachovia is the latest financial institution to seek outside financing from foreign and private equity investors. Today, the company reduced its dividend and said that it would raise about $7 billion, which is exactly what Washington Mutual secured from investors at the buyout firm TPG, last week.[44] New investors may give Wachovia $6 billion to $7 billion in return for shares priced at about $23 or $24 each, the Journal reported.[5] Investors reacted by sending Wachovia's shares sailing downward until the price of the deal had fallen by $1 billion on the day it was announced.[27] In return, the investor group would get shares priced at roughly $23 to $24 apiece — about an 18 percent discount to Wachovia's closing share price Friday of $27.81.[24]

Wachovia's shares have sunk 48 percent in the past year, dropping from a 52-week high of nearly $57 as the housing slump and credit crisis pounded the nation's leading banks and financial service companies.[24] NEW YORK -- Shares of diversified financial services companies fell on Monday, after Wachovia shocked Wall Street by reporting a first-quarter loss and cutting its quarterly dividend, suggesting a difficult year ahead for the nation's big banks.[46] LONDON (Thomson Financial) - Wachovia Corp. (nyse: WB - news - people ) said Monday it will raise capital by offering new shares as the bank swung to a first quarter loss.[41] NEW YORK - U.S. stocks fell on Monday for a second day after Wachovia Corp. reported an unexpected first quarter loss, adding to investors tension about earning reports after bellwether General Electric Corp. disappointed last week with its earnings loss.[19] CHARLOTTE, N.C. (AP) — Wachovia says it's cutting its dividend to 37.5 cents and going to issue common stock and convertible preferred stock after reporting a loss during the first quarter of $350 million before preferred dividends.[36]

Wachovia Corp. reported that total revenues in the first quarter ending in March rose to $7.9 billion from $7.4 billion from a year ago.[29] The bank said first quarter provisions of $2.8 billion reflected 'a severe deterioration in the residential housing market, particularly in specific markets in California and Florida,' as well as refinements in the way it calculates reserves.[41]

About 60 percent of Wachovia's $120 billion in adjustable-rate mortgages are in California, among the states hardest hit as housing prices tumbled.[5] About 58% of Wachovia's $120 billion option-ARM portfolio is in California and Florida, two states where home prices have fallen most sharply in the housing bust.[20]

Wachovia, which has slightly more than 200 branches in the region, was unable to provide information today on the performance of mortgages in the Philadelphia region, where it made 15,554 mortgages worth $2 billion in 2006, according to the most recent federal data. It was the largest mortgage lender in the eight-county region based on the number of loans and the third-largest behind Countrywide Financial Corp. and Wells Fargo & Co. based on the value of loans. [4] Wachovia cited $1.6 billion in writedowns of securities that included subprime and consumer home loans, commercial mortgages, consumer mortgages and leveraged buyouts.[31]

The fourth-largest U.S. bank took some drastic steps on Apr. 14. It set aside $2.8 billion to handle rising losses on loans, most of them home mortgages.[45] Among many other things, the bank took a $2 billion charge for "market-disruption" losses in the quarter, including a surprisingly high $729 million for unfunded loans and leveraged finance positions.[26]

Wachovia is putting aside $2.8 billion to cover possible losses on loans.[40] Though, Wachovia announced a $1.1 billion addition to reserves for losses on Pick-a-Pay loans.[28]

Independent research boutique CreditSights argues that a new computer model put into use for Wachovia's risk management is implying losses of between 7% and 8% for the Pick-a-Pay portfolio. That could mean another $2 billion of potential losses.[26] On Monday that figure was pegged at about $2 billion. It's also setting aside $2.1 billion against future credit losses, and said it will save about $2 billion more by slashing its quarterly dividend to 37.5 cents a share from 64 cents.[20] The company reported a first-quarter loss of $350 million, or 20 cents a share, compared with year-earlier net income of $2.3 billion, or $1.20 a share.[22] Excluding merger-related expenses, the Charlotte-based bank lost 14 cents a share. It earned $2.3 billion, or $1.20 a share, in the year-earlier period.[36]

The quarter's per-share loss of 20 cents compared with profit of $1.20 a year earlier and estimated earnings of about 40 cents a share, according to a Bloomberg survey of analysts.[31] Loss per share in the quarter was 20 cents compared to net income of $1.20 a share a year ago.[29]

Napoli expects Washington Mutual to lose $2.94 per share in 2008, compared with a previous estimate of $1.50-per-share loss. He now expects the bank to earn 1 cent per share in 2009. He previously forecast earnings of 70 cents per share.[1] Excluding merger-related and restructuring charges, the loss was $270 million, or 14 cents per share.[21]

Wachovia fell 14 cents to $27.67 in German trading. "I'm assuming they're going to have a meaningful loss,'' said Gerard Cassidy, an analyst at RBC Capital Markets, after hearing about the date change and possible cash infusion. He had estimated Wachovia would earn about 40 cents a share.[5]

A dividend cut is likely because the payout is costing Wachovia about $5 billion a year, according to analysts including Merrill's Najarian.[5] The Journal said Wachovia's cash infusion is similar in structure to the $7 billion in new capital Washington Mutual Inc. obtained last week from an investment group led by private equity group TPG.[24] Wachovia announced it will seek $7 billion in capital through sales of stock.[17] Wachovia may receive as much as $7 billion from investors to shore up capital, the Wall Street Journal reported, citing unidentified people familiar with the matter.[5] The change was announced shortly after The Wall Street Journal reported Wachovia was working on the final terms of a deal that would bring in between $6 billion and $7 billion of capital.[24]

Wachovia wrote down assets by $2 billion and plans to raise $7 billion through offering.[29] The bank plans to raise $7 billion via concurrent offerings of common stock and perpetual convertible preferred stock.[15]

In early trading today, shares fell more than 8 percent. Now the bank wants to raise billions in fresh capital by selling stocks, cutting its dividend and slashing jobs. WBTV's Melissa Hankins reports on what this could all mean for Charlotte.[42]

Wachovia has raised $8.3 billion so far in 2008 by issuing preferred stock and other securities, the report said.[47] Wachovia also expects net proceeds from a convertible preferred stock offering of about $3.4 billion.[14]

During the quarter to March, Wachovia's general banking earnings, which includes retail, small business and commercial customers, dropped by $249 million to $1.2 billion as mounting credit costs and related expenses offset the sales.[29] Wachovia also set aside $2.8 billion in the latest quarter to cover problem loans.[15] Wachovia also said it took write-downs of 2 billion during the quarter related to the credit crunch. It also set aside 2.8 billion to cover problem loans, up from 1.5 billion in the fourth quarter.[10]

Like Wachovia, other banks may miss earnings expectations as the housing market worsens and the credit crisis deepens into mortgages beyond subprime consumers to include even prime borrowers and commercial real estate. Vickrey said others like Midwestern bank National City Corp. and regional bank holding company Chemical Financial Corp. are among those due to the rate of growth in nonperforming loans and charge-offs.[14] New difficulties are on the horizon as commercial banks confront the declining housing markets and weaker consumer spending, and as the subprime mortgage sickness spreads into prime residential mortgages, home-equity loans, auto loans, credit card debt and other consumer-related debt. Other types of loans, such as leveraged loans used for buyouts by private-equity firms and commercial mortgages, also came under pressure in the first quarter.[40] Chief Executive Officer Kennedy Thompson may report the bank's first loss since the third quarter of 2001 because of California's weak housing market, depressed prices for commercial mortgage-backed securities and loans for leveraged buyouts.[5]

The bank estimated that 14% of the loans appeared to have negative equity, or loan-to-value percentages of greater than 100. To be sure, Wachovia has avoided the high-profile meltdowns sustained by Bear Stearns ( BSC, Fortune 500 ), which was sold last month to JPMorgan Chase ( JPM, Fortune 500 ), and Citi ( C, Fortune 500 ) and Merrill Lynch ( MER, Fortune 500 ), both of which ousted their CEOs late last year after disclosing massive losses on mortgage-backed securities. Wachovia's chief executive, G. Kennedy Thompson, appeared contrite, telling investors that he was "deeply disappointed" by the bank's quarterly performance.[26]

Sources said that potential buyers included Apollo, the American distressed-asset investor, and TPG, the U.S. private equity group. Both were part of a syndicate, with Blackstone, that agreed last week to buy about $12 billion of Citigroup's loans backlog. To induce the private equity firms, the banks are having to lend them large amounts of money to buy the debt.[2] The government is not obligated to bail out Fannie or Freddie, but many investors believe that government backing is implied. The two companies have been under pressure to buoy the declining housing market, and the Bush administration recently blessed a move by their regulator to reduce capital requirements so they could invest billions more in home loans. A lower credit rating for the U.S. government would lead to higher borrowing costs and could lead investors to dump Treasurys, which investors have been buying up in recent months as they seek safety in securities long considered to be risk-free.[40]

Golden West's loans were concentrated in California, one of the hardest-hit housing markets in the United States. Wachovia said this month that it was considering halting the making of loans, including its signature Pick-A-Payment mortgage loans, in 17 California counties heavily affected by falling home prices and rising foreclosures.[14] Wachovia said reserves were more than twice uncollectible loans during the quarter. Golden West, based in Oakland, California, specialized in so-called option adjustable-rate mortgages, which allow borrowers to decide to skip some of their monthly payments and add the amount to their principal.[31]

Mr. Thompson says most of Wachovia's problems in the latest quarter stem from Golden West, which pioneered adjustable-rate mortgages but now is being hammered by rising loan defaults.[9]

I think i can revise my 2001 prices prediction and say simply cut the 2006 price by 2 = that is the actual value of the house. I'm sure there was an argument to be made that these option ARMs were going to be pretty lucrative for the banks when they started to reset. I mean, they've got all these homeowners who are now going to be paying 9%+ on their mortgages, right? That's big money. They just didn't realize that walkaways and foreclosures would become quite the epidemic that they have. Ultimately, the Golden West move was a bad move, but you can understand why they might have found it tempting. "You wonder, then, how it's possible that Wall Street didn't recognize how risky these loans were until, um, today." When you lose a billion dollars it's a private matter. When you lose a trillion dollars, its a national matter. Of course, they must have recognized the risk.[48]

CHARLOTTE, N.C. (AP) — Wachovia Corp. said Sunday it will move up the release of its first-quarter financial results, an announcement that closely followed a report that the nation's fourth-largest bank is about to get a multibillion-dollar cash infusion. The Charlotte-based bank, which is struggling to digest its admittedly ill-timed purchase of mortgage lender Golden West Financial Corp., will report before the market opens Monday. The bank had been set to report its results Friday.[24] "We feel confident about the superior credit quality of our mortgage portfolio, the prospects for cross-selling our product set in Golden West markets, and originating Pick-a-Pay mortgages through traditional Wachovia channels," Kennedy told investors on last April's first-quarter conference call. The bitter irony here is that, while option ARMs can be problematic for both the consumer and the mortgage holder in a housing collapse, Golden West was almost universally held to be the most conservative and ethical underwriter in that marketplace.[26] While the heart of Golden West's business was nontraditional mortgages, Thompson assured jittery investors that Golden West's tough underwriting standards and decades of experience meant that Golden West was well-positioned to weather an anticipated slowdown in housing markets.[22]

Thompson said today the housing slump may not end until sometime next year. "They obviously didn't take a close enough look at Golden West,'' said Andrew Seibert, a portfolio manager at Nextier Wealth Management in Pittsburgh, which oversees $400 million in assets.[31]

Observers say a risky May 2006 purchase of Golden West Financial, a California mortgage thrift, for $25.5 billion, has soured.[47] Learning from the Golden West experience, Wachovia's board "is going to be extra cautious in any future acquisitions,'' said Smith, a board member since 1987. "What they missed was that prices had to come down in California and when that happened, it was going to cause all kinds of economic havoc,'' said Christopher Thornberg, president of Los Angeles-based Beacon Economics. Thompson, 57, said yesterday he was "deeply disappointed'' as Charlotte, North Carolina-based Wachovia posted its first quarterly loss since 2001.[8] From March 2000 through March 2006, Wachovia stock gained 50 percent, compared with a 34 percent gain in the 24-stock KBW Bank Index. Since March 2006, shortly before the Golden West acquisition, Wachovia has lost half its value, while the KBW Index is down about 26 percent.[31]

Wachovia is the second-largest bank in Northeast Florida, with 22.6 percent of the market and $6.6 billion in local deposits.[35] With a market cap around $50 billion, even titanic banks like JPMorgan, Bank of America (NYSE: BAC ) or Goldman Sachs (NYSE: GS ) would struggle to pony up enough money. Wachovia will likely need to dig its way out of this hole on its own.[11] Wachovia (NYSE:WB) is the fourth-largest bank in the nation with $809 billion in assets. It has the largest deposit marketshare in the Philadelphia region.[25] LOS ANGELES - (Business Wire) Manufacturers Bank, a California commercial bank with total assets of approximately $2 billion, and a wholly owned subsidiary of Sumitomo Mitsui Banking Corporation, reported income from operations of $23.6 million and net income of $13.1 million as of December 31, 2007, compared to $21.3 million and $13.3 million, respectively, for the same period in 2006.[49] "I will never touch again. I think there are a lot of people who feel the same way," said Nancy Bush, a longtime banking analyst who runs NAB Research LLC in Aiken, S.C. "This board has to somehow give the Street a sign that there is a lesson learned here." "This has been going on for 25 years," complained Joseph M. Gordon, who manages about $250 million at Gordon Asset Management in Durham, N.C. "The board needs to get very activist and say: 'Do we have confidence in him, or is it time for him to go?' I would vote for the latter." Mr. Thompson still has Wachovia's directors in his corner.[9] The writedowns left the group with an overall loss of $393 million for the period, compared with a $2.3 billion profit last time and well below the consensus analyst forecast of about $720 million in profits.[2]

The $2.8 billion set aside for credit losses was a sharp increase from the previous year, when it set aside $177 million.[21] The firm said that it would set apart $2.83 billion for covering credit losses and insuring against future failed loans. This article is copyrighted by International Business Times.[17] As recently as February, management said first-quarter loan losses would be up only slightly from the fourth-quarter write-down of about $1.5 billion.[20] Washington Mutual will likely have to reserve $14 billion in 2008 to cover loan losses, Napoli wrote in a research note.[1]

Loan loss provision increased to $422 million on the rapid deterioration in real estate values in certain housing markets and higher losses on auto loans.[29]

Wachovia, the country's fourth biggest bank and the largest locally, reported a $393 million dollar loss.[42] The corporate and investment bank lost $77 million, the second consecutive deficit after a $431 million loss in last year's fourth quarter.[31]

Wachovia has joined the parade of commercial and investment banks announcing first quarter losses and an intent to raise capital to carry it through the looming months of credit reversals.[23] Now, Wachovia, the fourth-largest U.S. bank, is seen as a target. If mortgage losses go beyond already gloomy predictions, "they could succumb to more capital pressure, and their independent-company days may be numbered," says David Hendler, an analyst at CreditSights.[30] According to Wachovia's Web site, Pick-a-Payment loans are fixed- and adjustable-rate loans that allow borrowers to make a range of monthly payment amounts, including partial-interest payments that add the unpaid interest to the homeowner's loan balance. Wachovia has taken fire from consumer groups and analysts for offering the products, which critics say encourage borrowers to fall behind in repaying their mortgages, leading to more frequent delinquencies and foreclosures. Data released Monday day gives credence to those critical claims: According to Wachovia, more than four of every 10 Pick-a-Payment mortgage holders, about 41%, have elected to pay the minimum payment allowed in each of the past 12 months. This trend bodes very poorly for Wachovia's performance over the next few years since housing values in most regions are falling, leaving borrowers with less equity - and banks with less collateral to rely on when borrowers stop paying.[32] The bank's books of loans have been particularly hard-hit by Wachovia's Pick- A-Payment mortgages, a variable-payment loan product that has taken harsh criticism from analysts and consumer-protection agencies.[33]

"When equity in the home approaches zero, behavior changes," said Ken Thompson, Wachovia's chief executive. Much to Wachovia's chagrin, even homeowners with high credit scores - once thought to carry little risk of foreclosure - are walking away from their mortgages. In February, Don Trunslow, Wachovia's chief risk officer, told analysts that although a homeowner's FICO score "is a predictor" of whether a homeowner will keep current on their mortgage," it appears that a. borrower feeling like they've lost equity in their home seems to be an even bigger driver of whether they actually default." He later called the trend "unprecedented," adding: "I don't understand it." If other bank officials don't understand the new psychology, say analysts, they need to get smart - and fast.[32] Wachovia Chief Executive Ken Thompson said the company's moves should fortify the bank even in a "worst-case scenario." The extra capital and lower dividend will "provide the flexibility to deal with almost any conceivable circumstances that might develop in the future," he told analysts.[45] Wachovia Chief Executive Kennedy Thompson said on a Monday conference call that the bank was preparing for a worst-case scenario that posits a decline in U.S. housing prices over the next 12 to 15 months.[20] Thompson said that the fresh capital will be enough to cover the bank's needs and more through 2009 even if Wachovia's worst-case scenario for the housing market proves true.[14]

'We are taking appropriate and prudent actions to further enhance our capital position in response to unprecedented economic conditions,' said Wachovia CEO/Chairman Ken Thompson. Mr Thompson signaled that the public offering was also intended to restore investor confidence when he added the following comments: 'These actions will significantly increase our capital ratios, and enhance our ongoing financial flexibility. We're extremely pleased with the strong expressions of interest we've already received regarding these issuances, which demonstrate the confidence of investors in our fundamental strengths and long-term outlook.' Investors could greet this move with skepticism, however. They will want to know whether the banks Directors have weighed this option carefully before they allowed the public offering to proceed.[27] The merger combined First Union's capital markets unit with Wachovia's retail and commercial bank, giving the company a diversified mix of businesses that impressed investors.[31]

Wachovia Corp. investors were hit with a double-whammy on Monday, after the fourth largest U.S. bank reported an unexpected loss for the quarter, cut the.[17] April 14 (Bloomberg) -- Wachovia Corp., the fourth-largest U.S. bank, plans to release quarterly results four days early, prompting speculation the company may report its first loss since 2001.[5]

NEW YORK, April 14 (UPI) -- Wachovia Corp. is seeking to raise billions in outside funding to weather the current mortgage crisis, sources close to the bank said. Wachovia, the fourth largest bank in the United States, has said its finances are sound.[47] JPMorgan Chase (nyse: JPM - news - people ), which rescued Bear Stearns (nyse: BSC - news - people ) last month, is expected to report a 50% drop in earnings per share. Wachovia's (nyse: WB - news - people ) undoing was its ill-timed foray into mortgage banking in California.[30] Relative strength in the retail sector, which followed reports Blockbuster (BBI 2.841, -0.32) was looking to acquire Circuit City (CC 4.97, +1.07) for at least $6 per share and a better than expected retail sales report for March, also provided a measure of support.[38]

Terms weren't disclosed in a press release, but The Wall Street Journal reported that Wachovia was expected to sell common shares for $23 to $24 apiece, a more than 15% discount to Friday's closing price of $27.81.[22] Wachovia will sell shares at $24 each, 14 percent less than the closing price on April 11, the Charlotte, N.C. -based company said in a statement today.[37]

The share sale included new common stock priced at $24, and convertible preferred stock that pays 7.5 percent interest, according to a company statement.[31] Wachovia stock fell $2.80, or 10.1 percent to $25.01 at 12:44 p.m. in New York.[17] The bank fell $2.26, or 8.1 percent, to $25.55 at 4:15 p.m. in New York Stock Exchange composite trading after reaching a low of $24.65.[31]

"Dilution from new equity combined with plans to build reserves a further $4 billion by year-end 2009 should significantly hurt earnings,'' Mike Mayo, an analyst at Deutsche Bank Securities Inc., said in a report today. He rates the bank at "hold.''[31] The bank's dividend will be slashed 41%, a move that will save the bank $2.1 billion over the next year.[45] The bank's loan-loss provision of $2.8 billion was a significant jump from $177 million a year earlier.[40] Total loans as of December 31, 2007 were $1.1 billion, representing an increase of $47 million, or approximately 4.6% over the previous year.[49] The credit-loss provision increased to $2.83 billion from $177 million as net charge-offs soared to 0.66% of average net loans from 0.15%. Nonperforming assets, those loans near default, ballooned to 1.70% of loans from 0.42%.[22]

Wachovia's nonperforming assets, for which it isn't collecting interest, totaled 1.7 percent as of March 31. "In the 1990 recession, NPAs got to 3.1 percent, so if Wachovia is one of the companies worst hit in this cycle, their nonperforming assets could more than double from here,'' said James Ellman, president of Seacliff Capital in San Francisco, which manages abut $200 million.[8] Wachovia shares closed Monday down $2.26, or 8.1%, to $25.55, on volume of 185 million compared with average daily volume of 33.7 million.[32] Shares of Wachovia have traded between $23.77 and $56.90 during the past year.[1] Shares of Wachovia fell $2.76, or 9.9 percent, to $25.05 in afternoon trading.[1] Shares of Washington Mutual fell 56 cents, or 5.1 percent, to $10.39. JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. are also scheduled to report first-quarter financial results this week.[1] The mean estimate of analysts polled by Thomson Financial was for a quarterly profit of 40 cents a share. The bank said it was cutting its quarterly dividend to 37.5 cents a share from 64 cents a share in the previous quarter.[41] Analysts had forecast, on average, that Wachovia would earn 40 cents per share in the latest quarter.[15] Wall Street had been expecting Wachovia to post a profit of 44¢ per share on Apr. 18. On Apr. 14, Wachovia posted a loss of 20¢ per share as it pushed ahead the release of its quarterly results by four days.[45] Elsewhere, analysts expect a 33% decline in profits per share at Dallas-based Comerica (nyse: CMA - news - people ); a 30% drop at Birmingham, Ala. -based Regions Financial (nyse: RF - news - people ); and a 13% drop at San Francisco's Wells Fargo (nyse: WFC - news - people ).[30] KeyCorp's (nyse: KEY - news - people ) profits per share are expected to fall 48%, and Fifth Third Bancorp's (nasdaq: FITB - news - people ) by 25%.[30]

National City (nyse: NCC - news - people ), based in Cleveland, is seen having a 38% drop in earnings per share in the quarter. It already cut its dividend nearly in half and acknowledged it was looking for a buyer or other strategic alternatives.[30]

The common stock portion was priced at $24 per share, which was a 14% discount to Friday's closing price.[38] Preferred stock will pay a 7.5 percent dividend and it will be convertible into common stock at $31.20 a share.[23]

The stock closed at $27.81 last week after falling by almost 50 percent during the past 12 months, reducing the company's market value to $55.1 billion.[5]

Wachovia, following in the footsteps of Washington Mutual, is arranging for a $7 billion cash infusion.[27] Wachovia also took a $2.8 billion provision to cover credit-related losses.[26] The disruption in the credit markets caused about $2 billion in losses.[45] The results for the first quarter of 2008 include writedowns of $2 billion related to the ongoing credit crisis.[35] Noninterest income fell to $3.1 billion from $3.7 billion in the first quarter of last year.[15] Net interest income rose to nearly $4.8 billion in the first quarter from $4.5 billion in the year-ago period.[25]

Earnings in the wealth management division - private banking, personal trust, investment advisory services, charitable services, financial planning and insurance brokerage -increased to $92 million first quarter of 2008 as revenues leapt 4%.[29]

The corporate and investment bank had a $77-million loss after a $431-million loss in the fourth quarter.[37]

The Charlotte, N.C. -based bank also said it raised $7 billion in fresh capital via common and preferred-stock sales to unnamed investors.[48] The $7 billion capital infusion gives some breathing room to turn things around.[9]

Wachovia raised $3.5 billion through a secondary offering in February. [20] Charity begins at home? OK, FYI Golden West made a $370M contribution to the Wachovia Foundation ahead of meger closing in 'o6.[27] Wachovia acquired Golden West at the height of the real-estate boom in order to quickly expand its nontraditional home-lending business, a once-lucrative industry that provided mortgages to riskier buyers by using less stringent underwriting guidelines. That deal gave Wachovia the very same "option-ARM" lending business that's now at fault for so many of Wachovia's losses.[32] Wachovia had coveted Golden West's branch network but the acquisition exposed Wachovia to aggressive mortgage lending activities which included a heavy emphasis on interest only loans and Option ARMs - adjustable rate mortgages where the borrower can choose to pay the full amount of the monthly payment, interest only, or any amount in between.[23] Many of Wachovia's troubles now stem from Golden West's option ARM mortgages that let borrowers pick payment amounts, some of which addressed only the interest on the loans.[20]

Wachovia said troubled loans in the Golden West portfolio deteriorated more quickly than expected.[30]

During the boom times, mortgage applicants with sky- high FICO scores were often approved for a mortgage automatically by lenders' underwriting software. That rush to approve could mean even more foreclosure trouble among highly- rated mortgage borrowers lies only a short jog down the road. "Loans were made not locally, but centrally, with little underwriting expertise beyond the increasingly unreliable FICO score," according to Meredith Whitney and Kalmon Chung, banking analysts at Oppenheimer & Co., a unit of Oppenheimer Holdings Inc. (OPY), who wrote their comments last month in a note to investors. Wachovia said it has tightened its underwriting standards considerably, and now writes Pick-a-Pay mortgages only to well-qualified borrowers.[32] Among Wachovia's book of Pick-a-Pay loans, "nonperforming assets" - or soured loans - "grew 309.8% year-over-year," compared with an annual bad-loan growth rate of 119.7% for Wachovia's traditional mortgages, said Byron MacLeod, an analyst with Gradient Analytics, in a note to investors.[32]

To the dismay of many analysts, Wachovia has repeatedly said that it remains enthusiastic about the loans, and will even expand the sales force that sells the product. What's more, reports earlier this year confirmed that Wachovia pays richer commissions to employees who sell Pick-a-Payment loans, an extra incentive that Wachovia says it pays because the loans require more time to explain.[32]

More option-ARM borrowers are defaulting and further price declines are likely to worsen the problem, Wachovia said. Fourteen percent of the option-ARM loans matched or exceeded the value of the underlying property in February with three-fourths of those loans in California, the bank said.[31] In California, where house prices are dropping sharply in some areas, that ratio on Pick-a-Pay loans has climbed from 70 percent to 80 percent, Wachovia said.[4]

The sharply rising credit provisions at WaMu and Wachovia show that big mortgage companies are belatedly taking a much more realistic view of the problems in many U.S. housing markets. Prices are falling sharply in once-hot areas such as Florida and California, and the declines are spurring rises in mortgage defaults and delinquencies. Those trends are saddling big lenders with hefty losses. [28] Bank executives are obviously alarmed by the eroding housing market, particularly in California where Wachovia is a major mortgage lender.[45]

The provision largely reflects severe deterioration in the residential housing market, particularly in California and Florida. "I'm deeply disappointed with our first-quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," says Ken Thompson, chief executive.[15]

Wachovia is now taking a far more pessimistic view of the housing market. Home prices have already fallen 6.1% from their peak nationwide, and Wachovia now expects prices will fall another 6.8%, not hitting bottom until the middle of 2009. It was this change in Wachovia's outlook that sparked its drive to raise capital and cut its dividend.[45] Ken Thompson says planned stock sale and dividend cut was done to insulate bank from eroding housing market, not in response to regulatory scrutiny.[3]

The worst-case scenario that Mr. Thompson is alluding to is the fallout from Wachovia'''s poor investment into the interest-only mortgage market. On top of that, the mortgages that were written by lending companies like Wachovia and Washington Mutual (or mortgages that were purchased and sold off by Wachovia and WAMU) did not properly disclose vital information to the borrowers that could have helped prevent this looming financial crisis. Federal investigation is underway into these dubious lending practices, which is not going to bode well for Wachovia or any of the other mortgage lenders. Once shareholders fully understand the ramifications surrounding any and all of the pending lawsuits these companies face, there will be a shotgun sale of stocks and this could be tumultuous to the overall health of the stock market, if not the entire economy.[44] Like numerous other financial institutions throughout the country, Wachovia has been hard hit by losses due to the subprime mortgage crisis. Wachovia portrayed its public offering of stock as a responsible initiative necessary to attenuate the adverse consequences ensuing from that crisis.[27]

The gloomier outlook for losses shows how much credit conditions have worsened. "Wachovia's asset quality has been fairly good compared to their peers for the last three years, so that certainly came as unexpected," said Alina Ifteni, a banking analyst at SNL Financial, based in Charlottesville.[40] "And I'm here to tell you that simply isn't true." Even if Wurtz was right that there's no "tragedy" on the horizon, it's clear Wachovia and many of its peers are facing more pain ahead. Washington Mutual came to the same conclusion last week, when it announced a big first-quarter loss that hinged on a sharp increase in its own reserves for future credit losses.[28] Credit ratings firm Moody's said Wachovia was facing a "challenging environment". It is the latest in a string of top Wall Street names to suffer hefty losses and write down the value of their mortgage-backed investments, whose worth tumbled after thousands of Americans were unable to repay their mortgages.[10] Wachovia is the latest in a long line of major lenders to take a hit from the global credit crunch, which has caused significant loan losses and write-downs.[21]

Aside from home lending, Thompson is also scaling back Wachovia's corporate and investment bank as demand for packages of home loans and other complex securities shows no sign of rebounding. Wachovia is cutting 500 jobs in the unit by this summer, bringing to more than 1,000 the number of positions eliminated since early 2007.[8] Wachovia Chairman and CEO Kenneth Thompson said 12 percent of the jobs in the company's global markets and investment banking divisions will be cut. The Associated Press said there were 6,100 employees in those areas.[25] Since October, Wachovia has cut more than 260 jobs in corporate and investment banking, which had about 6,100 employees as of Dec. 31.[21]

Wachovia announced it will cut investment banking jobs, however, it didn't say how many or where.[42]

In a conference call, Wachovia told investors it plans to eliminate 500 jobs in the markets and investment banking unit during the second quarter.[35]

NEW YORK (Fortune) -- Wachovia investors are paying through the nose for the bank's ill-advised California gold rush.[26] G. Kennedy Thompson, Wachovia'''s chairman and chief executive said, '''We believe our investors will be best served by preparing for a worst-case scenario,''' ( The New York Times, 4/14/08).[44]

The stock ended the day down 8.1 percent. Chief Executive Officer Kennedy Thompson, 57, said he was "deeply disappointed'' as Charlotte, North Carolina-based Wachovia posted its first quarterly loss since 2001.[31]

The Wachovia chief also apologized to current shareholders, who will bear the brunt of the capital-raising efforts. Besides seeing their dividend payments slashed, Wachovia shares fell 10% in Monday morning trade, following the news. "I know these actions are not without costs," said Thompson.[3] Shares of Wachovia were down to $25.20 from $27.81 in pre-market trading.[33]

The client, Pollich said today, took out a $417,000 mortgage with Wachovia to buy the $420,000 house. We talked him into putting it up for sale.[4] In an interview Monday, Thompson reaffirmed Wachovia's commitment to the mortgage industry, saying "we see mortgage as a big opportunity for us." "We think it's a market that's going to be dominated by a few large banks and we see Wachovia being a player in that," Thompson said.[14] Just a year ago, CEO Ken Thompson sounded certain that Wachovia would avoid that fate. Asked his views of possible regulation of so-called exotic mortgages - ones that, like Wachovia's Pick-a-Pay product, give borrowers the option to pay less than the full amount of interest that accrues in a given month - Thompson made comments on an April 17, 2007, earnings call that now sound a bit naive. "It does not affect us," Thompson said.[28]

"The precipitous decline in housing market conditions and unprecedented changes in consumer behavior prompted us to update our credit reserve modeling and rely less heavily on historical trends to forecast losses," Wachovia CEO Kennedy Thompson said Monday.[28] Chief Executive G. Kennedy "Ken" Thompson said the "precipitous decline in housing market conditions and unprecedented changes in consumer behavior" damaged the bank's results.[34] As a result of Monday's announcements, Thompson said the company's Tier 1 capital ratio, a gauge of the bank's ability to absorb huge losses, would hover around 8.75% by the end of 2009.[3] The bank ' s capital ratios for Tier 1 Risk-based Capital, 17.09%, and Total Risk-based Capital, 18.34%, as of December 31, 2007, continued to exceed the regulatory definition for a " well capitalized " bank of 6% and 10%, respectively. As of December 31, 2006, these ratios were 17.03% and 18.28%, respectively. In commenting on these strong financial results, John F. Chavez, President and Chief Operating Officer, stated, " Although many financial institutions faced a very challenging 2007 as a result of a difficult economic environment and sub-prime exposure and related losses, I am very pleased to report that our bank has no exposure in the sub-prime area and limited exposure to residential construction lending.[49] Last week, it announced a new set of lending guidelines that appeared to be a broader step to help manage losses at the bank. "The problem is they keep doing deals, and they hit a deal that didn't work," said Nancy Bush, an independent analyst with NAB Research LLC in Aiken, S.C. "A capital infusion may not be the answer.[24]

Merrill Lynch and Citigroup have suffered combined losses of more than 43 billion U.S. dollars, although Swiss bank UBS has been worst affected, having to absorb a loss of 37 billion.[10]

Non-performing assets of $8.3 billion rose 56% from the fourth quarter and were eight times the level of just a year ago. [30] For the quarter, assets under management rose 5% to $79.8 billion 'as asset gathering overcame market depreciation'.[29]

The latest results include writedowns of $2 billion related to the ongoing credit crisis.[15] The move, it said, would save $2 billion that it will use for capital needs and growth opportunities.[41]

Revenue fell 4.5 percent to $7.89 billion from $8.27 billion last year.[14] Revenue fell 5 percent to $7.9 billion, missing the average $8.37 billion forecast.[39] Revenue fell 5 percent to $7.9 billion, short of the average $8.37 billion estimate, Reuters Estimates said.[16]

Profit at the division which includes retail, small business and commercial customers fell 17 percent to $1.2 billion.[31] Revenue at the unit declined 54 percent from the year-earlier period. The wealth management unit's profit rose 9.5 percent to $92 million.[31]

Total deposits as of December 31, 2007 were $1.4 billion, representing an increase of $89 million, or 6.6% compared to $1.3 billion reported as of December 31, 2006.[49] Failures from Pick-A- Payment mortgages rose to $1.1 billion - or 1.55% of the total Pick-A-Payment portfolio - nearly double the levels it reported at the end of 2007.[33] Net interest income in the period advanced to $4.8 billion from $4.5 billion a year ago.[29] Washington Mutual recently raised $7 billion with a tie-in to TPG, an equity firm.[47] Revenue fell 4.5%, to $7.9 billion, well below analysts' estimates of $8.3 billion.[21] The Commerce Department reported a slight increase in March retail sales, topping the flat expectations of analysts. "This report highlights that the consumer is facing a number of strains from higher energy prices to a weakening labor market," said Lehman Brothers economist Drew Matus in a research note. IBM, the world's largest computer-services company, added 99 cents to $116.99 after Goldman increased its share- price forecast and earnings estimates.[19] Analysts polled by Thomson Financial, on average, forecast earnings of 40 cents per share.[1] The group's shares closed down $2.50, almost 9 per cent, at $25.31.[2]

The preferred shares can be swapped for 32.0513 shares of common stock initially valued at $31.20.[31] The stock was trading at $24.97 during late morning trading on Monday, down 10.18 percent from the Friday close.[23] The stock slumped 12% to $24.49 in premarket trading. At that price, the stock has lost 36% since the end of 2007.[41]

The news of large losses and dividend cut forced the stock down 10% and now has lost 58% in the last two years of trading.[29] Wachovia said most of the cuts will be in New York and the company's headquarters in Charlotte, N.C. No information on possible cuts in the Philadephia area was available.[25] Wachovia will disclose results no later than 6 a.m. New York time, the company's statement said.[5]

Losses have also risen in recent months in auto loans and credit cards, The New York Times reported Monday.[47]

Bloomberg News today: "Ninety-nine percent of Golden West's mortgage loans were option ARMs." You wonder, then, how it's possible that Wall Street didn't recognize how risky these loans were until, um, today.[48] "The report, by analyst Brian Foran, said the Golden West loan portfolio was being squeezed by the 'unprecedented period of stress' in the California real estate market." Golden West didn't just specialize in option ARMS, it lived, ate, and breathed them.[48]

"And I think that goes to the very conservative underwriting standards and servicing standards. at Golden West," the California thrift Wachovia acquired in 2006.[28] Unfortunately Golden West did help transform Wachovia right into one of the mortgage-lending zombies currently menacing the financial-services landscape.[27]

The bank bought San Francisco-based Golden West Financial in 2006 in what was then seen as a shrewd entry into a red-hot mortgage market. Golden West specializes in adjustable-rate mortgages and had a long track record of surviving real estate booms and busts because of its conservative lending philosophy. This is no ordinary bust.[30] Thompson got board approval for the transaction 11 days after the initial contact between the two companies in April 2006, a regulatory filing showed. Golden West specialized in so-called option adjustable-rate mortgages, which allow borrowers to decide to skip some or all of the monthly payments and add the amount to their principal.[5] In a May 8, 2006 interview with Bloomberg News, Thompson called Golden West "a very conservative lender'' that would do well even if housing prices went down. "You would have to have huge unemployment and a huge downdraft in home values before this product got hit in any big way,'' he said.[31]

Just as another big mortgage lender, Washington Mutual ( WM, Fortune 500 ), did last week, Wachovia is finally confronting the steep price it will have to pay for the excesses of the housing boom. [28] Wachovia's investment banking unit, a large packager of mortgage debt and provider of loans to fund corporate buyouts, has also struggled.[39] Wachovia's woes "indicate further trouble ahead," especially for regional banks, as defaults rise on a range of loans, said Banc of America Securities analyst Kenneth Usdin.[9] Some analysts say Wachovia's urge to write more Pick-A-Payment loans is hardly a safe risk-management decision. "In the very short term, this strategy could help generate higher loan origination fees and. boost profits slightly," MacLeod said.[32]

Thompson tried to reassure analysts. "Beneath a complicated and disappointing quarter is a core set of businesses which are performing quite well," he said. A recent merger with A.G. Edwards is going well, he said, and the bank expects wider profit margins now that the Federal Reserve has sharply cut interest rates.[45]

With higher loan-loss reserves now expected to sap Wachovia's earnings through 2009, some critics said it is time for Mr. Thompson to feel some heat from the bank's directors.[9] "The news out of Wachovia would suggest the environment has probably deteriorated faster in recent weeks, to a greater extent than people may have anticipated," Jonathan Armitage, the New York-based head of U.S. large-cap equities at London-based Schroders PLC, told Bloomberg. Banks now face "a tougher environment for the consumer, whether it's housing- or mortgage-related, or direct-to-consumer lending."[34] Wachovia said Friday that it was introducing new lending guidelines to help manage losses.[25] Last week, it announced a new set of lending guidelines that appeared to be a broader step to help manage losses at the bank.[14]

The breadth of the bank's losses stunned Wall Street, sending shares down 10%.[26] Bank shares fell Monday as investors braced for a dismal wave of first-quarter earnings reports during the next two weeks.[9]

Wachovia and Others Preparing for a Rainy Day Wachovia is the latest financial institution to seek outside financing from foreign and private equity investors Today the company reduced its dividend and said that it would raise about 7.[44] The company tried to assure investors that the dividend is not likely to shrink again, saying the 37.5 cents already reflects the 2009 losses.[33]

What's next for Wachovia? Shareholders can only hope the bleeding will relent sometime soon, but if recent market activity is any indicator, investors could face rough sailing for quite some time. [11] Why does Herb Sandler get so much credit for calling the turn in the mortgage market? If he is so smart why is he still a significant shareholder in Wachovia? All GDW shareholders who trusted him (Davis, Wellington, Dodge & Cox) have been burned badly as well.[27] Credit ratings firm Moody's said Wachovia was facing a "challenging environment". It stressed that the bank's strong retail deposit base meant that it did not face any liquidity problems.[18] CreditSights said calls Wachovia's management "top-flight," but says bank management was caught "off-guard" by the housing market's rapid collapse.[26] The bank's executives blamed today's moves to bolster capital to accelerating deterioration in the housing market in California and elsewhere.[43] Citigroup, Merrily Lynch and UBS all raised billions of dollars last fall in similar moves. These deals or bailouts have come after many of these same companies expanded their retail franchises and moved into certain housing markets, California in particular, and acquired assets from other mortgage lenders that specialized in interest-only mortgages.[44]

WaMu, which just months earlier had forecast a first-quarter credit-loss provision of around $1.9 billion, said last week that the actual provision was $3.5 billion. [28] I know the argument is that they're paying a low price for Countrywide, but even at $0 purchase price, they are still taking Countrywide's liabilities, which could total in the billions.[48] Median price tags of new units went down by 4.3 percent from December rates to $216,000.[12]

Credit quality remained very strong as evidenced by the low levels of non-accrual loans which totaled $4.3 million, or.40% of total loans as of December 31, 2007, compared to non-accrual loans of $1.2 million or.12% of total loans on December 31, 2006.[49] " Our balance sheet continued to strengthen with sufficient liquidity and with shareholder equity growing in 2007 to $257 million, or by 6.6% compared to 2006. These results are a tribute to our experienced management team who has maintained sound credit quality and high regulatory standards, and to our dedicated team of professional bankers who deliver state of the art and innovative solutions to our loyal customers.[49]

Ken Thompson, the chief executive of Wachovia, said: "I am deeply disappointed with our first-quarter results. [2] Thompson's position as CEO seems secure partly because so many other financial services executives are facing difficulties, Jason Goldberg, an analyst at Lehman Brothers Holdings Inc., said in a Blooomberg TV interview. He rates Wachovia an "overweight.'' "We think Thompson is capable of weathering this storm'' Goldberg said. "We don't know anyone else who is better than him to get through this.''[8] Some worry Wachovia's "worst-case scenario" isn't bad enough. "We don't think this reflects a 'kitchen sink' as we expect housing values to continue to sharply deteriorate," Morgan Stanley ( MS ) analyst Betsy Graseck says of Wachovia's Apr. 14 news.[45] Wachovia said it projects housing values will fall another 6.8% nationwide before hitting bottom in "mid-2009." The length and severity of that decline is crucial, since borrowers who have no home equity, or negative home equity - that is, when a homeowner's mortgage balance equals or exceeds the home's value - are quitting their mortgages en masse, choosing to face the consequences of foreclosure rather than continue to fund a home whose value is falling.[32] Wachovia said it is increasing credit reserves to reflect changes in customer behavior and an assumption that house prices will continue to fall.[25] NEW YORK (Fortune) -- Wachovia's dour numbers should end any fantasies that the credit crunch is almost over.[28] The New York Stock Exchange (NYSE) is likely to be the first foreign firm allowed to list on the Chinese stock market, a Chinese financial website report.[19]

To raise capital, Wachovia will include public offerings of common and convertible preferred stocks.[34] "We had no regulator at any time approach us and ask us to raise capital (or) to cut our dividend; zero, not one conversation," Thompson said on a conference call. He called the decisions "the right thing to do at this point."[7] A confident Thompson said the bank has now raised enough capital to weather stormy days ahead.[43] The bank took aggressive action to "prepare for an economy that is looking worse than what we were expecting or almost any economist was expecting in the late fourth quarter," chief executive officer Ken Thompson said in a conference call with reporters.[4] "We think we are now one of the best-capitalized major banks in the country and we think that will help us get through the credit cycle over the next couple of years," Thompson said.[14]

Charlotte is the second biggest banking center in the country and Wachovia's the biggest bank here, locally. [42] While the banks have been losing money on bets made on subprime loans, general banking consumer, the bedrock of core banking clients are charged higher and higher fees.[29] "You wonder, then, how it's possible that Wall Street didn't recognize how risky these loans were until, um, today." Both the banks and Wall Street don't want the party to be over any more than Lawrence Yun or Lefty or anyone else who made a quick fortune in the last few years. I'm frankly surprised the Dow isn't UP 50pts on this news.[48] Manufacturers Bank is headquartered in Los Angeles and operates from branch offices in Downtown Los Angeles, Little Tokyo, Beverly Hills, Encino, Warner Center, San Jose, City of Industry, Torrance, Newport Beach, and from a Loan Production Office in Ontario, California. All statements in this release, except for historical fact, should be considered forward looking, including statements about the bank ' s plans, goals, and future expectations for growth. Such statements are subject to changes in the economic, legal and regulatory environment, changes in product delivery and technology that may affect the bank ' s operations and continued evolution in the financial services industry.[49]

Wachovia's first-quarter loss could be a harbinger of worse to come for the financial sector. [21] Wachovia's situation created a sense of angst that the bottom for the financial sector may not be as close at hand as many pundits were claiming just a few weeks ago. Further insight on that notion should be provided throughout the week as a number of financial firms, including JPMorgan Chase (JPM 41.50, -1.03), Wells Fargo (WFC 27.20, -0.77), Merrill Lynch (MER 42.88, -0.80) and Citigroup (C 22.51, -0.85), report their quarterly results.[38] A headline on a Goldman Sachs & Co. report today on Wachovia put it succinctly: 'California really is that bad.[48]

Thompson orchestrated First Union Corp.' s September 2001 acquisition of North Carolina rival Wachovia Corp., defeating a hostile bid from SunTrust Corp. of Atlanta.[31] Fitch Ratings siad Monday that it affirmed Wachovia's "AA-/F1+" long and short-term issuer default ratings with a stable outlook, citing the company's capital improvement initiatives.[21] Don Truslow, Wachovia's chief risk officer, said the company expected home prices to continue to fall through 2008 before finally hitting bottom sometime in the middle of 2009.[3]

"The board is strongly behind the entire management team," said Lanty L. Smith, Wachovia's lead independent director and chairman and CEO of Tippet Capital LLC, a Raleigh, N.C., investment firm.[9] It isn't a surprise that the sagging housing market and slowdown in consumer spending is hurting Wachovia.[50] Wachovia ( WB ) expects to be inundated by problems in the housing market.[45]

Oil prices rose to an intraday trading record above $112 a barrel Tuesday after the U.S. dollar fell further and crude supplies to the U.S. and elsewhere. [17] U.S. Treasurys fell in price on Monday after more news of banks in crisis were offset by a government report showing slightly higher retail sales in Marc.[19] The worry is that, despite low interest rates, suffering banks could cut off credit to consumers and businesses. That could choke off economic activity just as the U.S. is trying to avoid a serious recession.[45]

A key question is whether banks can make up for losses on mortgages with revenue from other businesses. [45] "Most banks will provision more for losses in '08 and '09. This is something that will impact the banking industry in general."[40]

"Commercial banks are now starting to run into credit-default problems," said Gerard Cassidy, banking analyst with RBC Capital Markets.[40] "The Golden West deal could go down as one of the worst-timed transactions in recent memory," said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine.[39] The 2006 purchase of Golden West has saddled the bank with a problem of growing proportions.[26]

The company ended the quarter with a Tier-1 capital ratio of 7.5%, up from 7.4% at year-end, and well above the 6% level that regulators say indicates a bank that is considered to be "well-capitalized." [34] The Charlotte, N.C., bank delivered a big dose of bad news to investors Monday.[28]

SOURCES

1. Sector Snap: Investment Banks - Forbes.com
2. US bank Wachovia takes $4.4 billion hit as foreclosures surge in Florida and California - Times Online
3. Wachovia CEO defends capital raising plans - Apr. 14, 2008
4. Wachovia suffers for ill-timed purchase | Philadelphia Inquirer | 04/14/2008
5. Bloomberg.com: U.S.
6. Wachovia posts surprise 1st-quarter loss, raises $7 billion | Reuters
7. No regulator pressure to add capital: Wachovia CEO | Markets | Bonds News | Reuters
8. Bloomberg.com: U.S.
9. Wachovia Swings to Loss, Plans to Raise Capital - WSJ.com
10. Mercopress
11. Wachovia's Bleeding Continues
12. Home Sales, Prices Down In January | April 15, 2008 | AHN
13. Wachovia Corp. reports big 1Q losses, plans to cut 500 jobs - The Business Journal of Phoenix:
14. The Associated Press: Wachovia Posts 1Q Loss, to Raise $7B
15. Wachovia posts 1Q loss, slashes dividend - Charlotte Business Journal:
16. REFILE-UPDATE 2-Wachovia posts surprise loss,eyes $7 bln capital | Industries | Financial Services | Reuters
17. Wachovia Seeks $7 Bln After Surprise Loss - International Business Times -
18. BBC NEWS | Business | Wachovia to cut jobs after losses
19. U.S. Stocks Drop After Wachovia Report Loss - International Business Times -
20. Surprise Loss Whacks Wachovia Shares (Wachovia Bank) at SmartMoney.com
21. Wachovia Gets Wacked - Forbes.com
22. UPDATE: Wachovia To Raise $7 Billion In Capital, Posts 1Q Loss
23. Wachovia Losses and Job Cuts
24. The Associated Press: Report: Wachovia to Get $7B Investment
25. Wachovia loses $393M in 1Q - Philadelphia Business Journal:
26. Blame Golden West for Wachovia's cringe-inducing loss - Apr. 14, 2008
27. Deal Journal - WSJ.com : Wachovia and Golden West: A Good Idea at the Time
28. Mortgage mess mangles Wachovia - Apr. 14, 2008
29. Wachovia Loss Dividend Cut $7 B Offering - Earnings
30. Banking's Mean Season - Forbes.com
31. Bloomberg.com: Worldwide
32. At Wachovia, Pick-A-Pay Becomes Pick-A-Problem
33. Wachovia Plans For Heavy Losses Well Into 2009
34. Wachovia's Surprise Loss, Financial Ills, Reignite Subprime Mortgage Fears
35. Wachovia posts $350 million Q1 loss, looks to raise $7 billion - Jacksonville Business Journal:
36. The Associated Press: Wachovia Has 1Q Loss; Raising Capital
37. Wachovia posts quarterly loss
38. Briefing.com: Wachovia, Financials Drag Down Market
39. Wachovia posts surprise 1st-quarter loss, raises $7 billion - washingtonpost.com
40. Wachovia Lost $350 Million In 1st Quarter - washingtonpost.com
41. UPDATE: Wachovia swings to 1Q loss, to raise $7B in capital; shares fall - Forbes.com
42. Wachovia Woes: Affecting the Local Economy | WBTV | Top Stories
43. Wachovia's California bet incurs steep price as bank raises $7 billion, cuts dividend - San Francisco Business Times:
44. Wachovia and Others Preparing for a Rainy Day
45. Wachovia's Wall of Worry
46. Closing Glance: Diversified Financials | Chron.com - Houston Chronicle
47. Wachovia seeking to raise billions - UPI.com
48. L.A. Land : Los Angeles Times : Wachovia's California crisis: "California really is that bad"
49. Manufacturers Bank Reports 2007 Earnings
50. Wachovia's Washout - Forbes.com

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