Bad Home Loans Cause $393 Million Quarterly Loss for Fourth Largest U.S. Bank
- Apr 14, 2008
Charlotte, N.C.–Wachovia Corp.–the fourth-largest bank in the U.S.–blamed California home loans for its surprise loss and said it will increase capital by selling $7 billion of stock and cutting the dividend.After the Charlotte, N.C.-based company announced it would sell shares for $24 each–a 14 percent decline from last week’s closing price–it fell by the largest amount in 17 years in New York trading, Bloomberg reported Monday.The U.S. housing decline may not end until next year, Wachovia said Monday. The company also plans to eliminate 500 investment banking positions.Wachovia’s first- quarter loss was $393 million, compared with $2.3 billion earnings last year. Chief Executive Officer Kennedy Thompson, 57, said he was “deeply disappointed” that Wachovia had its first quarterly loss since 2001. Because of California and Florida housing market declines, Wachovia set aside $2.8 billion for credit losses in the three months ended March 31. Wachovia set aside $422 million more for credit losses because of “rapid deterioration” in consumer real estate and auto loans.The bank’s market value has now fallen 50 percent after its $24.6 billion takeover of Golden West Financial Corp. in 2006, when the housing market was expanding.Some analysts cited Wachovia’s adjustable-rate mortgages–which allow borrowers to add unpaid interest on to the principal if they skip payments-–as a possible factor in the bank’s troubles. Late payments on option-ARM loans were twice the previous 1990s-high, Bloomberg said.