Golden West

Wachovia's earnings: A shocking loss

Jim Kim — Wed, 22 Oct 2008 13:09:24 -0400

Wachovia's last earnings announcement was a doozy. It reported a massive $24 billion loss. That's $2.23 a share loss versus expectations of a 2 cents a share loss. Ouch! Portfolio wonders if Vikram Pandit was sitting back chuckling. His counterpart at Wells Fargo, John Stumpf, put the right spin on it: "We're more encouraged than ever by what we've seen in their franchise, and we're pleased that Wachovia's team continues to focus on serving customers." But clearly the carnage inflicted by the credit crisis was severe. "While average deposits were up 4 percent during the period, actual deposits at the end of it were down 2 percent over last year, which suggests a bit of a run on the bank during the final weeks of the quarter," Portfolio writes. And here's the shocker: Wachovia said it expects losses of various option ARM-type mortgages to hit $26 billion by the end of next year. Recall that it paid $27 billion for Golden West last year. Wells seems to know what it is getting into. We'll see.

For more:
- here's the article

Can Wachovia survive on its own?

Jim Kim — Thu, 10 Jul 2008 17:49:12 -0400

Wachovia's new CEO, Robert Steel, has roots at Goldman Sachs, where he was vice chairman before moving into public service at the Treasury Department. His corporate pedigree has only stoked the view that perhaps Goldman Sachs is interested in buying the bank, despite its woes. The big issue for Wachovia is capital. A Goldman Sachs analyst has noted that nearly half of the $8 billion of capital raised in April has already "evaporated," according to Seeking Alpha. This, of course, endangers the dividend, and will likely force some asset sales; and that may not be enough. Any buyer will have to be convinced the worst is over and that the Golden West disaster has been worked through. My sense is that the Goldman Sachs rumor is mere wishful thinking.

For more:
- here's the Seeking Alpha item
- Wachovia's stock hits 17-year low. Article
- more on new Wachovia CEO. Article
- more on the bank's big writedown. Article

Countrywide to be Ken Lewis's undoing?

Jim Kim — Sun, 08 Jun 2008 10:35:21 -0400

The sacking of former Wachovia CEO Ken Thompson shows how one deal really can blow a guy's career. True, Wachovia had run into considerable problems, but the bank's ill-timed Golden West deal was the final straw for the board. Will the Countrywide deal wreak the same sort of havoc (except on a grander scale) at Bank of America? Ken Lewis, CEO of Bank of America, remains convinced the bet will pay off. But there are many reasons to doubt him. The mortgage business remains uncertain, to say the least. The New York Times takes a long look at Countrywide's loan servicing business. Once the company's crown jewel, it has also run into some thorny problems that will be hard to fix. The jury's still out. We've said all along that Lewis has bet his career on the deal.

For more:
- here's the New York Times article

Thompson's legacy at Wachovia

Jim Kim — Thu, 05 Jun 2008 08:21:25 -0400

Ken Thompson's career was built on savvy deals only to be undone by a single deal. The make-the-man deal was First Union's merger with Wachovia. As CEO of First Union, Thompson struck a savvy deal that paid Wachovia shareholders a middling premium; he also retained the Wachovia brand. Another deal added Prudential Financial's brokerage staff to Wachovia without having to pay a dime. The deal that overshadowed all, however, was his disastrous plunge into the California mortgage market at exactly the worst time. In hindsight, the $26 billion deal for Golden West was either going to make him or break him. Wachovia would end up an elite bank, or Thompson would have to pay. The board made him pay.

For more:
- here's the Business Week article

Will CEO turmoil continue?

Fri, 18 Apr 2008 06:59:56 -0400

We've seen a lot of high profile CEO lose their jobs. Stanley O'Neal. Chuck Prince. Jimmy Cayne. But at least one MarketWatch commentator thinks at least two other fairly big name CEOs ought to be similarly shown the door. He says that Ken Thompson, of Wachovia, and Kerry Killinger, of Washington Mutual, "were exposed as overhyped pedestrian CEOs this week." Ouch! PR folks, do something. Killinger was rapped for the $1.1 billion loss and the required dilutive $7 billion capital infusion from private equity investors. Thomson was pilloried for the disastrous Golden West purchase. The jury remains out on several CEOs, including Ken Lewis of Bank of America, who's betting big on Countrywide.

For more:
- here's the commentary

Wachovia raising $7 billion

Mon, 14 Apr 2008 06:59:56 -0400

Wachovia, aiming in part to blunt the effects of its first quarter loss, says it will raise $7 billion to shore up its capital position. It appears it will issue some common and some preferred convertible stock. This comes on top of a move earlier this year to raise more than $8 billion. The company has said recently that it was in fine shape, but the first-quarter loss wasn't expected, with many believing that the mortgage crisis is the main culprit. You have to wonder if executives aren't kicking themselves over their purchase of mortgage high-flier Golden West, which specialized in interest-only loans, at the height of the bubble. Commercial real estate now looms as another challenge, the New York Times notes.

For more:
- here's the New York Times background