Wachovia Losses Outpace Expectations - RBC Analyst

With the largest quarterly deficit for a banking company during the credit crisis, Wachovia Corp.’s (WB) $23.9-billion third-quarter loss on a $18.7-billion goodwill write down is a noteworthy feat to say the least. It has lost $33-billion in the past two quarters.

The charge would not likely have been taken if the merger with Wells Fargo & Co. (WFC) were not in the works, RBC Capital Markets analyst Gerard Cassidy told clients. The $11.18 per share loss was "drastically greater than both our expectations and consensus," he added.

“Wachovia’s third quarter results were very much in line with our expectations,” Wells Fargo’s President and CEO John Stumpf said in a statement. “We believe that it was prudent for Wachovia to put these losses behind them,” said Wells Fargo’s Chief Financial Officer Howard Atkins added.

The company also said the goodwill impairment will have no impact on its plan to raise $20-billion in capital by issuing securities to maintain its capital position as it takes over Wachovia.

And while it insists that the $14.4-billion takeover won’t depend on government assistance as a Citigroup Inc. (C) bid would have, the U.S. Treasury Department is buying huge stakes in nine financial institutions, including Wells Fargo.

Robert Willens, a corporate tax expert and former managing director with Lehman Brothers Holdings Inc. (LEH) told the San Francisco Chronicle:

Although they’re certainly not getting government assistance in the conventional sense, they’re certainly getting a form or variety of assistance that’s probably as valuable as what was being offered, or close to it anyway, to Citigroup.

“[Wells Fargo] doesn’t particularly need it,” Bart Narter, senior vice president of research firm Celent told the newspaper. “While I can’t read their minds, looking at their behavior, if they wanted help from the government they would have asked for it” during the Wachovia deal.

A Wall Street Journal report suggested the Treasury will buy as much as $25-billion of preferred shares in Wells Fargo.

Comments

[Urbane Gori...:]

Gee! I really wish this was BofA or WFC... I really hate doing business with them. Wachovia and Wamu were really nice places to do business.... I get a perverse sense of glee when BofA and WFC stocks drop.... Even if it is like watching your own leg get fed into a woodchipper..

jegan

2008 Oct 22 07:39 PM

[Fitz919:]

Wachovia could no longer hide the bad loans on their books because Wells Fargo now has complete access to those books. That's why the huge loss was posted during this quarter. If there was no Wells Fargo deal, we would definately have not seen a loss anywhere near this size. Up until now Wachovia has been pretty good at keeping it's secrets.

The next question is: What will it take to expose Wells Fargo's secrets?

2008 Oct 22 08:50 PM

[venividivici:]

Exactly Fitz 919. They were forced to open their "Pandora's Box". I think it is safe to say that they all have their own "Pandora's Box" and the contents may be every bit as toxic or even more so.

2008 Oct 23 01:58 AM

[Ishortyou:]

most of the reported write down came from run on the bank from retail and small businessese, other than that the losses came not that far off as expected. They can remediate their banking book of business by getting rid off the bad loans under the government program.

2008 Oct 23 05:21 AM