- banking - credit crisis - financial crisis - subprime crisis - USA
Banking giant Wachovia took a severe hit from the US housing slump with a second-quarter loss of 8.662 billion dollars as it announced plans Tuesday to cut jobs and end wholesale mortgage operations.
The loss amounted to 4.20 dollars per share, far above the average Wall Street forecast of a loss of 78 cents per share.
Wachovia also announced it would cut 5,350 jobs by the end of 2009 as it restructures in the face of a difficult environment, and a sharp cut in its dividend.
Shares in Wachovia opened with heavy losses but rebounded amid expectations that the banking giant would be taking moves to restore profitability.
At midday, shares were up 7.9 percent at 14.22 dollars.
Credit firm Standard & Poor's downgraded its rating on Wachovia but said the otulook is now stable. It said the bank was hurt by its acquisition of mortgage firm Golden West but is now taking steps to shore up its finances.
"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."
Wachovia said it had written off 6.1 billion dollars "reflecting declining market valuations and asset values."
Overall revenues fell 14 percent to 7.5 billion dollars.
"These bottom-line results are disappointing and unacceptable," said Lanty Smith, Wachovia's board chairman and interim chief executive, pending the arrival of Robert Steel, a former Treasury official, named CEO and president.
"While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility. Our company is facing up to these issues, is addressing the challenges head-on and has redirected near-term strategic priorities."
Wachovia said it would cut its dividend to save 700 million dollars per quarter and end its General Bank wholesale mortgage-origination channel.
Some 1,000 Wachovia mortgage origination personnel are being redeployed in the company's efforts to assist customers to refinance and restructure mortgages.
Steel, who took his new job July 9, said, "In the short term, the entire organization is focused on protecting, preserving and generating capital; reinforcing Wachovia's strong liquidity position; and reducing risk."
The second-quarter loss compared with a profit of 2.34 billion dollars in the same period a year ago.