Whoa, Wachovia!
Robert Steel has gone from putting out fires as Treasury undersecretary to facing a three-alarm blaze on his own block.
Steel was recently named chief executive of Wachovia, which has now reported a loss of nearly $9 billion for its second quarter and cut its number to be divided to nearly zero.
Wachovia has been roiled by the collapse in the mortgage market. Nearly half of its pledge lending has been in California and Florida, two states with some of the highest foreclosure rates in the nation. Its overexposure came as a result of the acquisition of Golden West, a California lender bought at the elevation of the housing boom.
The architect of that deal, Ken Thompson, was ousted as C.E.O. last month, and Wachovia turned to Steel, who was vice chairman of Goldman Sachs before joining Henry Paulson at the Treasury Department.
Wachovia’s dismal results will add to the gloom over the financial sector, gloom that was briefly lifted by better-than-expected—or perhaps more accurately, not-as-bad-as expected—results from Citigroup and Bank of America. On Monday, American Expres reported an unexpected 38 percent decline in earnings.
Wachovia lost $8.66 billion, or $4.20 per share, compared with a profit of $2.34 billion, or $1.22 per share. Revenue fell 14 percent, to $7.5 billion. The bank added $5.6 billion to its loan loss reserve to cover net charge-offs and increase the reserve by $4.2 billion.
"These bottom-line results are disappointing and unacceptable," said Lanty L. Smith, Wachovia’s presiding officer, who served as interim chief executive officer beginning June 1. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility."
Wachovia is cutting its dividend a second particular period this year, to 5 cents, from 37.5 cents. The bank estimates the move will save $700 million of capital each quarter.
It is also exiting its wholesale pledge commerce and plans to fire more than 6,300 employees.
This is a bank that is moving aggressively to slash and burn so that it might regard a chance to start growing again. Steel, who has no commercial banking experience, be inclined need to be a quick study if Wachovia is to be left behind independent.