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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. 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 NOT INCLUDE A GOODWILL IMPAIRMENT IN ITS GOLDEN WEST BUSINESS. Why did I put that sentence in all caps? Because Wachovia's inability to face the reality that its ill-timed $25 billion acquisition of Golden West Financial, of which $15 billion is sitting in Goodwill, 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 am 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.
Source: Reported by Mock The Market http://mockthemarket.blogspot.com/
Posted July 22nd, 2008 by Armen Hareyan
