And another surprise for the week....LOL the financials surprises are endless lately...no wonder I will not touch them....1 there and 1 here.....
Wachovia Posts Loss, Plans $7 Billion Capital Raising
April 14 (Bloomberg) -- Wachovia Corp., the fourth-largest U.S. bank, reported an unexpected loss because of subprime- infected mortgage holdings, cut its dividend and said it will raise about $7 billion in a share sale to replenish capital.
The first-quarter loss of $393 million, or 20 cents a share, compared with earnings of $2.3 billion, or $1.20 a year earlier, the Charlotte, North Carolina-based company said in a statement today. Analysts had been estimating Wachovia would earn about 40 cents a share, according to a survey by Bloomberg. Wachovia fell 8.4 percent to $25.66 in German trading.
Chief Executive Officer Kennedy Thompson said he was ``deeply disappointed'' after Wachovia posted its first quarterly loss since 2001 and reduced the dividend to preserve $2 billion of funds. The company's market value has dropped 50 percent since its ill-timed $24.6 billion takeover of Golden West Financial Corp. in 2006 at the peak of the housing market.
``The most painful decision was to reduce the dividend because it adversely affects our shareholders,'' Thompson said in the statement. ``But we believe the long-term benefit to shareholder value outweighs the disadvantage of the dividend reduction as we fortify our balance sheet against continued instability in the housing and capital markets.''
The planned capital raising, comprising common stock and convertible preferred shares, will ``enhance our ongoing financial flexibility,'' Thompson said. ``We're extremely pleased with the strong expressions of interest we've already received.''
Negative Return
Washington Mutual Inc., the largest U.S. savings and loan, got $7 billion last week from investors led by David Bonderman's TPG Inc. In all, banks and securities firms, including Citigroup Inc. and Lehman Brothers Holdings Inc., have raised about $140 billion since last year after more than $245 billion of losses tied to the collapse of the subprime mortgage market, data compiled by Bloomberg show.
First-quarter revenue declined 5 percent to $7.9 billion. Return on equity, a gauge of how effectively the company reinvests profit, was negative 2.1 percent, compared with 13.5 percent a year earlier. The quarterly dividend was slashed to 37.5 cents a share from 64 cents.
Wachovia set aside $2.8 billion for credit losses in the three months ended March 31, mainly because of deterioration in the housing markets of California and Florida. Non-performing assets, including loans held for sale and foreclosed properties, totaled $8.4 billion, or 1.7 percent of loans, up from 0.4 percent a year ago.
Mortgage Market
Led by 57-year-old Thompson, Wachovia's biggest transaction was the acquisition of Oakland, California-based Golden West at the height of the housing boom. Thompson got board approval for the deal 11 days after the initial contact between the two companies in April 2006, according to a U.S. regulatory filing.
Golden West specialized in so-called option adjustable-rate mortgages, which allow borrowers to decide to skip some or all of their monthly payments and add the amount to their principal. About 60 percent of Wachovia's $120 billion in adjustable-rate mortgages were in California at the end of last year, which ranks among the states hardest hit by the slide in housing prices.
Wachovia's late payments and losses from the loans were lower than industry averages in 2007, prompting Chief Risk Officer Donald Truslow to say in February that the bank's mortgage business might remain profitable even if loans losses quadrupled this year.
Investment Banking Loss
Seattle-based Washington Mutual reported a first-quarter loss of $1.1 billion last week, cut its dividend and announced plans to eliminate 3,000 jobs. Wachovia also said today it will cut investment banking jobs, with providing specifics.
Analysts had been estimating Wachovia would earn about $715 million in the first quarter before the company said late yesterday it was bringing forward the release of first-quarter results by four days. The decision prompted Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, to say he now assumed the company would report ``a meaningful loss.''
Earnings at Wachovia's consumer and commercial banking unit were almost $1.2 billion in the first quarter, down 17 percent from a year earlier, the company reported today. The corporate and investment banking division had a loss of $77 million after a profit of $550 million a year earlier. Earnings from retail brokerage, asset management and private banking were $473 million.
