Who's to Blame for the Mess at Wachovia? Start with the Board

"There's been a complete recognition at the board level that Golden West was a mistake and that we have to deal with the consequences of it," Wachovia (WB) Chairman Lanty Smith said in the company’s conference call Thursday morning.

Say, thanks Lanty! Where were you back in May of 2006?

The unremarked-upon fact surrounding the management changes at Wachovia Thursday is that, through all the tumult, the company’s board has been an absolute disaster for shareholders.

Oh, it’s fine for Lanty Smith to say now that the Golden West deal was “a mistake.” But why couldn’t he have done his job and been more skeptical about the deal two years ago when the board was considering it? It’s not as if there wasn’t an enormous amount of skepticism at the time: the stock dropped by 7% the day the acquisition was announced, and kept on falling after that. The housing market was clearly slowing—particularly in California.

Yet if Smith or anyone else on the board had a bad word to say about the Golden West buy, we’ve yet to hear of it.

Then the board compounded its negligence by failing in what is perhaps directors’ most important duty: ensuring that a CEO succession plan was in place. So when the mortgage crackup finally happened and Ken Thompson thrown over the side, the board was pathetically unready to find a replacement. The market seems pleased with the choice it came up with, and maybe Bob Steel will do a great job. But the fact is that at the moment of the greatest credit stress in Wachovia’s history, the company is now going to be run by an individual with absolutely zero lending or credit experience. Great. The shareholders can thank their board.

Lanty Smith says Wachovia has “come to grips” with its problems. That’s not true. If it were, and the board really were serious about getting rid of the causes of its recent problems, it would resign. Starting with its chairman—Lanty Smith.

Tom Brown is head of BankStocks.com.

Comments

[infoplease:]

I am so happy to finally see someone say the same thing I have been saying for months. If you go to the Wachovia message board you will find the same thought. I only hope someone who can force the board to resign will get involved. Thanks.

2008 Jul 13 08:29 AM

[CES:]

AMEN !!!!

2008 Jul 13 08:50 AM

[CES:]

AMEN !!!!

2008 Jul 13 08:51 AM

[notsosmart:]

it would be great to name all the co,s that have been ruined by this lack of oversight by bod,s.most boards have only one priority-to take care of themselves.if there happens to be an ethical honest board member who goes against the grain-soon gone!it may be hard to believe but this virus has spread down to even homeowner assoc. boards.(as per articles on this website).practically-e... has an agenda for themselves.

2008 Jul 13 10:38 AM

[Ames Tiedeman:]

Does this one go to ZERO like IndyMac?

2008 Jul 13 11:24 AM

[EmmVee:]

Hey Tom - where can I get a pair of those 20-20 hindsight glasses?

2008 Jul 13 03:33 PM

[DSinvestor:]

MV- that is unfair- multiple analysts criticized the deal. I worked there at the time and some of us questioned getting in at the tail end of a bull market. Even we that questioned did not know how far overblown it was in California markets.
To my knowledge, Lanty Smith fully supported Thompson on this. He supported Crutchfield and Georgius on the disastrous CoreStates bid.
He should go.

2008 Jul 13 06:51 PM

[Vegasjoe:]

Lanty turned Wachovia into a shanty
And now they can't afford to make new loans
Let's hope that means no more dumb buys like Golden West
But after Core States, BOLI, AG Edwards, and senior scammers, what's left to bequest?

2008 Jul 13 08:45 PM

[wreckingball:]

wb is in bad shape, but very fixable, or at least i hope or Charlotte NC will end up like New York, I will take Charlotte over NY

2008 Jul 13 08:59 PM

[Old Banker:]

As an old banker who went through the S & L crisis, we have seen this before. First Union was so badly run, that it had to take the Wachovia name.

I wonder what will be the new untarnished name.

As a stock holder, I am glad I sold stocks at $48. I knew the Golden State purchase was bad, because the types of loans with negative amortization was part of the reason the S & Ls failed.

2008 Jul 14 02:35 PM

[Kipling:]

Well said! The First Union people who have run the bank since the merger have done to Wachovia what they did to First Union; destroy it.

2008 Jul 14 07:31 PM

[Big Al45:]

Everything the First Union crowd touched turned to cr@p.

Now, it's finally their turn. There's no way Wachovia will stay independant. Hopefully, it will probably be taken over (or under), and none of the current board will be retained. Don't think FDIC can afford to have it go the IndyMac route.

2008 Jul 14 08:35 PM

[cmsr:]

Cut my dividend and sponsor a golf tournament? I should attend the golf event with a baseball bat.

2008 Jul 14 10:57 PM

[noretention:]

You guys should have worked there...we were SouthTrust and were doing well, became Wachovia and could not believe the immaturity of the buffoons who were "leading" this company...sing it Mitch Graul, sing Laurie Ewing, sing it Wendy Lawrence...how personal is that banking now Charlie Williams?

2008 Jul 16 03:36 PM

[Elduque:]

Jenkins and Carroll raped Virginia, got big promotions and have now helped screw up the whole company. Thompson didn't screw up this company by himself.

2008 Jul 17 10:39 AM