Wachovia's Problems Worsen

After initially announcing job cuts of 6,350 employees in July, Wachovia (NYSE: WB) this week said that as many as 6,950 employees may now be out of work. That doesn't include recent announcements of the departure of CFO Thomas J. Wurtz, and Chief Risk Officer Don Truslow. Wachovia is expecting the job cuts to cost as much as $650 million as it restructures its workforce.

Recent days have seen the announcement of a class action lawsuit from shareholders, regulatory investigations, and increases in the amount estimated losses originally announced just a few weeks ago. Wachovia stock closed Monday at $18.21 per share, off from its 52-week high of more than $50.

In addition to revising the expected job cut figure, Wachovia also revised its second quarter losses from the originally stated $8.86 billion to $9.11 billion. This represents a loss of $4.21 per share. The stock remained steady on Monday, gaining a little over 1.5%, before selling off more than 12% Tuesday. In July, Wachovia stock hit a low of just $7.80 per share. Investors who picked it up at that level have more than doubled their investment in a single month.

In the lawsuit, the firm Brodsky & Smith alleges that Wachovia made "material misrepresentations" that led to inflated stock prices. The suit is being brought on behalf of stockholders who purchased Wachovia's stock at these alleged inflated levels between May 8^th, 2006 and April 11^th, 2008. While the suit has not been certified at this point, Wachovia has vowed to fight it vigorously and has increased its reserves for legal expenses by half a million dollars.

That, though, seems the least of Wachovia's worries at the moment. Federal and state securities investigators are pressing Wachovia on its municipal bond bid practices. You'll recall that on July 17^th, regulators raided the company's headquarters after it failed to fully comply with states' subpoenas regarding auction-rate securities, according to regulators. The municipalities and states that purchased these securities were left holding the bag after the market for them collapsed earlier this year. Wachovia says they are in "active discussions" to settle the matter.

Going forward, the company expects losses from the mortgage portfolio it acquired in 2006 as part of its acquisition of Golden West to reach as high as 12%. The purchase of Golden West carried a $25 billion price tag back in 2006 before the mortgage and housing mess began spiraling out of control.

Problems aside, Wachovia appears to have the resources to weather the storm and there is no sign of imminent collapse.

Disclosure: None

Comments

[hunter:]

your article smells of short selling to use words like imminent collapse

2008 Aug 13 07:51 AM

[driver:]

Absolutely nothing new in here. The job cuts had been announced. Auction-rate security issue has more coverage than #4 in a Jets uniform. WB is the 4th largest depositor in the country. Profits are a concern. Solvency is not. Stop with the self-serving blogs.

2008 Aug 13 09:04 AM

[User 242780:]

The "raid" was not at Wachovia's headquaters, it took place at an office in St. Louis Missouri. Not to mention all of the information obtained by said "raid" could have been obtained by a simple phone call. It's bloggers like you and the global media who are adding histeria and self-fulfilling profecy to our current economic conditions. Thanks a lot chicken little.

2008 Aug 13 09:28 AM

[jimmy46:]

BORINGGGGGGGGGGGGGG

2008 Aug 13 01:52 PM

[Cream Cheese:]

Right on, guys. This is a shameless rehash, to get hits from investors looking up stocks on Yahoo Finance.

2008 Aug 13 02:01 PM

[Apache:]

I beleive Wachovia has a problem were they are the lead underwriter on a project in Las Vegas. There are other banks involved in the underwriting and I think the builders involved are on the way out.

2008 Aug 13 08:00 PM

[MIke D:]

REPORT FACTS NOT FICTION! The reported "raid" was nothing of the sort. The "raid" was a prescheduled visit to review the marketing material used for auction rate securities. Numerous investment offices in the state were also "raided" aka visited by officials on the same day to inspect their materials as part of a widespread investigation of all investment firms. STOP SPREADING LIES, REPORTERS WHO WRITE THIS SORT OF CRAP IS WHO NEEDS TO BE PUNISHED. YOU ARE ARTIFICIALLY LOWERING STOCK PRICES WITH FALSE REPORTS!

2008 Aug 14 09:57 AM