I'll give Wachovia a bit of credit for warning investors that its earnings were going to be dismal. When you are a week away from posting a nearly $9 billion loss, and the boneheaded analyst community is still anticipating a profit, it's wise to issue a press release. Despite the warning, investors were a bit flummoxed by the bank's
eye-popping loss of $8.9 billion. Wachovia posted a loss of $4.20 a share compared with net income of $2.3 billion or $1.23 a share a year earlier. Wachovia also slashed the dividend to a meager 5 cents a share from 37.5 cents and plans to fire 6,350 employees (updated to 10,750 employees in later news reports). If you think this is all the bad news Wachovia will report, you haven't read the fine print. Apparently Wachovia's $8.9 billion loss did include a $6.1 billion impairment against goodwill due to its acquisition of Golden West Financial. (please see updated note below) According to my calculations, however, Wachovia still needs to take at least an additional $9 billion to writedown the full $15 billion in Goodwill it holds against Golden West acquisition. The inability of the company to face the reality that its ill-timed $25 billion acquisition of Golden West Financial was a complete mistake, is a sign that management is clearly still smoking crack. 14% of Golden West's $121 billion in Pick-A-Pay loans, 70% of which are based in declining housing markets of California or Florida, have zero or negative equity. According to my calculator, that is $17 billion. For more Pick-A-Pay ranting, please click on the link to all my prior
Wachovia bashing.
Above and beyond the Pick-A-Pay mortgage fiasco, Wachovia did include a $4.5 billion reduction in the value of commercial loans, plus $597 million in investment-banking assets. So if you thought its lax underwriting skills were confined to residential mortgages, you were sadly mistaken. As it turns out, the bank is pretty lousy at underwriting loans across the board. Furthermore, it paid $144 million in legal settlements related to telemarketing and $975 million due to an adverse tax court ruling on lease transactions. The really good news is that Wachovia was also raided by regulators last week in a probe tied to auction rate securities. I'm sure that's not going to be expensive either. Anyone who believes that this is the kitchen sink quarter and the company will start to post earnings again needs to lay the crack pipe down.
Update: My original post did not include the $6.1 billion in goodwill impairment because the Bloomberg report I based it on has erroneously reported that the company was NOT taking a goodwill impairment charge. My apologies for the confusion. For an updated news report, here's the link to cnn.com's story. 
2 comments:
Hello. I find your blog very interesting. Recently, my friend had to deal with Wachovia company. It is not that he was dissatisfied with the services, but the charges are too high. I think that if the bank charges high fees then the customer service should be on the appropriate level. People, who commented on the bank on this great site www.pissedconsumer.com also think so.
People like you are making the case worse. Before you post (bash) any institution, you should get your facts straight. You are right; the Golden West Fin. Acquisition could not have come at a worse time. It was a horrible move, but even after paying for our bad decisions and flushing after the pile of Pick-A-Pay was laid, Wachovia is still considered one of the better capitalized banks among large commercial banks. Issues... of course, what bank does not have them? It is the measures to take to deal with the issues that make the difference. By the way, there is only on bank that can claim being #1 in customer satisfaction... what a coincidence, is Wachovia!
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