Wachovia Warns of Large Losses, Hires New CEO

Wachovia expects to post losses of at least $2.6 billion when it reports earnings July 22nd.  This equates to around $1.25 a share.  Analysts were expecting earnings of 16 cents a share, but I'll get to the part about how useless analysts have been in a minute.  The forecast includes a $4.2 billion pretax charge to build loan-loss reserves, $3.3 billion of which are related to "Pick-A-Pay" loans, which I have mocked relentlessly ad nauseam here at Mock the Market.  Furthermore, Wachovia expects to incur a goodwill impairment charge, the amount of which is still being determined.  Still being determined?  I sincerely hope that they did not pay Goldman Sachs a bunch of money to help them calculate a goodwill impairment charge that my next door neighbor's crazy cat could've coughed up with her next fur ball.  You don't need an abacus to do the math on this one.  They paid $15 billion more than book value for Golden West Financial.  Write the whole damn thing down already!

On to the analyst bashing.  On Thursday, June 26th, I wrote a piece about the speculation surrounding potential suitors for Wachovia and did a very quick analysis of the bank's financials.  I noted that Wachovia had $90 billion of option arms concentrated in California and Florida and $3.5 billion in deferred interest (interest they had booked as income that they had yet to collect from borrowers since borrowers were choosing to make minimum payments) as of the March 31, 2008 quarter end.  I also noted that Alt-A performance had deteriorated significantly in May. (Indymac's demise is further proof of this phenomenon.)  I went on to say that the company had yet to take any impairments against the Golden West financial acquisition and that it would need to take a significant write-down.  Frankly, I spent a couple of hours looking at the company's 10-Q and 10-K before I came to these conclusions.  The jokers aka analysts, who get paid gobs of money, spend all day looking at financials and somehow were expecting the company to post a profit.  How and why?  Because the worst is over?  If you read a major financial publication, have taken a basic accounting class and spent about 20 minutes looking at the company's financials, you could've easily concluded that they were going to lose money.

Wachovia made one other significant announcement:  The company hired Treasury Undersecretary Robert Steel as CEO.  This is actually a very positive development, not because he's a GS alum but because he has Hank Paulson's phone number.  It's always a good idea to know how to get in touch with the US Treasury Secretary.  Particularly if you are bank that may need a bailout in the near future.