- The Washington Times - Tuesday, April 15, 2008

CHARLOTTE, N.C. (AP) — Wachovia Corp. is getting a lesson in “timing is everything.”

The nation’s fourth-largest bank reported a $393 million first-quarter loss and has been forced to cut its dividend. It will seek a $7 billion cash injection to make up for a poorly timed expansion of its mortgage business.

The company also said it plans to cut 500 jobs in its corporate and investment bank.

“I’m deeply disappointed with our first-quarter results,” Chief Executive Ken Thompson told analysts yesterday on a conference call. “I know these actions aren’t without cost. I wish they weren’t necessary, but they are.”

Shares in Wachovia fell $2.26, or 8.1 percent, to $25.55 yesterday.

It’s the second time this year the Charlotte-based bank has gone to the well for cash, a move analysts say more banks large and small will do to brace themselves against further loan losses.

“This isn’t surprising, and we’ll see more of it,” said Donn Vickrey, an analyst with Gradient Analytics Inc. in Scottsdale, Ariz.

As the housing market worsens, and the credit crisis deepens into mortgages beyond subprime consumers to include even prime borrowers and commercial real estate, Mr. Vickrey said, others — such as struggling Midwestern bank National City Corp. and regional bank-holding company Chemical Financial Corp. — are at risk for an earnings miss as a result of the rate of growth in nonperforming loans and charge-offs.

Even larger outfits, like Citigroup Inc., the No. 1 U.S. bank by assets, may have to raise more cash by selling additional stakes in themselves to outside investors or slash their dividends.

Last week, Seattle-based Washington Mutual Inc. said that a consortium of investors led by TPG would invest $7 billion into the struggling thrift.

“There’s a number of banks out there that are really high-risk for this same thing,” Mr. Vickrey said.

Wachovia’s troubles with the housing slump have been compounded by its 2006 acquisition of California-based Golden West Financial, a $25 billion deal whose timing, Mr. Thompson has said, “was not the best.”

“With the benefit of hindsight, it is clear that the timing was poor for this expansion in the mortgage business,” Mr. Thompson wrote in a letter to shareholders in February.

But in an interview yesterday, Mr. Thompson reaffirmed Wachovia’s commitment to the mortgage industry, saying, “We see mortgage as a big opportunity for us.”

“We think it’s a market that’s going to be dominated by a few large banks, and we see Wachovia being a player in that,” Mr. Thompson said.

Golden West’s loans were concentrated in California, one of the hardest-hit housing markets in the United States. Wachovia said this month that it was considering halting the making of loans, including its signature Pick-A-Payment mortgage loans, in 17 California counties heavily affected by falling home prices and rising foreclosures.


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