Wachovia Corp., the #4 U.S. bank, said this morning its Q1 earnings jumped 33% on cost control and risk management, and the successful integration of its Golden West acquisition. Net income rose to $2.3 billion for the quarter ($1.20/share), vs. $1.73 billion ($1.09) in Q1 2006. Excluding one-time expenses, EPS were $1.20, ahead of analyst consensus estimates of $1.16. Revenue gained 17% to $8.24 billion; net interest income was up 27%. Wachovia inherited $120 billion in adjustable rate mortgages from Golden West; it said that selling fixed-rate mortgages and offering free checking accounts to new customers led to a 27% average increase in deposits and helped the lender overcome the recent slowdown in mortgage initiations. About 3% of Wachovia's portfolio is subprime; the company has put aside $177 to account for potential losses. Wachovia shares are down about 5% since the Golden West deal was announced on concerns it was overextending itself during a lending slowdown. CEO Kennedy Thompson recently said, "Investors are slowly realizing that this was a contrarian deal, but one that's going to pay off." Shares are up 2% to $55.05 in pre-market trading.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Wachovia's Imprudent Takeover of Golden West • Oversold Large Stocks - An Investment Opportunity? • Financial Sector: Sometimes Bad Gets Worse
Stocks/ETFs to watch: Wachovia Corp. (WB). Competitors: Bank of America Corp. (BAC), Wells Fargo & Company (WFC), JPMorgan & Chase Co. (JPM), Mellon Financial Corp. (MEL), SunTrust Banks Inc. (STI). ETFs: PowerShares Dynamic Banking (PJB), streetTRACKS KBW Bank (KBE)
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