Wachovia posts $8.9B loss for 2nd quarter

Tuesday, July 22, 2008 | 8:38 p.m. CDT; updated 8:56 p.m. CDT, Tuesday, July 22, 2008

WASHINGTON — Wachovia Corp. lost a staggering $8.9 billion in the second quarter of this year, leading the nation’s fourth-largest bank to cut its dividend and slash 6,350 jobs in response to mortgage-related losses.

Wachovia is being hurt by its $25 billion acquisition of California’s Golden West Financial Corp. in 2006, a California lender known for novelty mortgages that are now defaulting at a higher rate than more traditional mortgages.

Shares of Charlotte, N.C.-based Wachovia dropped at the market’s opening Tuesday but later rose. The market as a whole mirrored Wachovia, diving at the opening bell on earnings from American Express Inc., Apple Inc. and Texas Instruments Inc., all of which failed to meet analysts’ expectations.

A further drop in oil prices helped boost the market back into positive territory in late-morning trading, and it moved sharply up shortly before the close. The Dow Jones industrial average ended the day up 135 points, about 1.2 percent, at 11,603. The Standard & Poor’s 500 stock index rose nearly 1.4 percent with a 17 point increase to 1,277. The tech-heavy Nasdaq composite index climbed more than 24 points, or 1.1 percent, to 2,304.

Crude oil settled Tueseday down $3.09 at $127.95 a barrel on the New York Mercantile Exchange. Wachovia stock gained $3.61 to close at $16.79, a 28 percent increase.

Wachovia’s second-quarter earnings blew through the basement of analyst expectations. Analysts guessed that the bank would post a loss of 78 cents per share. Instead, Wachovia lost $4.20 per share. Even backing out write-downs and other one-time charges, the bank lost $1.27 per share.

In the second quarter of 2007, Wachovia earned $2.3 billion, or $1.22 per share.

The bank cut its dividend from 37.5 cents per share to 5 cents, which will save about $700 million in cash per quarter.

Wachovia has hired Goldman Sachs Group Inc. to evaluate its loan portfolio.

“These bottom-line results are disappointing and unacceptable,” Wachovia Chairman Lanty Smith said in a statement. “While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility.”

Wachovia tapped former Treasury Undersecretary Robert Steel as its chief executive earlier this month to help lead the bank through the ongoing mortgage crisis.

Golden West sold a “Pick a Payment” loan option, which lets customers pay less-than-full interest payments on new loans. Such exotic loans, typically given to first-time homebuyers with shaky credit, carry a higher default rate than standard mortgages and have been the flashpoint of the mortgage crisis, which has spread to the credit industry.

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