Wachovia Takes $8.9 Billion Loss, Cuts 6,350 Jobs

With write-downs and loan reserves surging, Wachovia Corp. posted an $8.86 billion second-quarter loss, closed its wholesale mortgage operations and announced 6,350 job eliminations.


The Charlotte, North Carolina-based bank also slashed its quarterly dividend 87% to 5 cents per share from 37.5 cents– representing a 92% reduction during the first six months of this year.

The $8.86 billion net loss stood in comparison to a first-quarter loss of $350 million and a profit of $2.34 billion one year earlier.

As Wachovia deals with the troubled mortgage portfolio of Golden West Financial Corp., the company reported $6.1 billion in write-downs and a $4.2 billion increase in loan loss provisions.

On July 9, Wachovia had projected a $2.6 billion to $2.8 billion quarterly loss on the same day it named former Treasury Undersecretary Robert Steel as a replacement for ousted CEO Ken Thompson.

"These bottom-line results are disappointing and unacceptable," said Wachovia chairman Lanty Smith.

"In the short term, the entire organization is focused on protecting, preserving and generating capital; reinforcing Wachovia's strong liquidity position; and reducing risk," added Steel.

The company said it would terminate the jobs of 6,350 full-time employees, as well as eliminating 4,400 open positions and contractors.

The employment cuts are expected to yield around $600 million in expense savings next year.

About 1,000 mortgage origination personnel are being redeployed to help customers refinance and restructure mortgages, according to Wachovia.

At quarter’s end, Wachovia's residential servicing portfolio stood at $201.1 billion, up from $197.3 billion at the end of the first quarter.

Standard & Poor's downgraded its rating on Wachovia, but placed the outlook on the company as stable, citing steps being taken to shore up its finances after taking damage from the acquisition of Golden West.

"The one-and-a-half years of owning Golden West have taken a toll on Wachovia's earnings performance, but this era is coming to a close," said S&P credit analyst Victoria Wagner.

"Wachovia does not hold substantial exposures to other risk credit exposures in this current stressed banking cycle ...we believe credit expenses should remain manageable at moderately low levels."


Posted on Wednesday, July 23, 2008 by staff