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Wachovia reports $23.9 billion loss for 3Q

The Wachovia Corporation announced a $23.9 billion third-quarter loss on Wednesday as it prepared to be taken over by Wells Fargo.

The bank took an $18.7 billion charge to write down the value of good will and wrote off $6.6 billion in credit losses tied largely to its disastrous purchase of Golden West Financial in 2006. And the red ink is unlikely to end soon.

Wachovia projected an additional $26.1 billion in mortgage-related losses in 2009. And it wrote down only a tiny portion of its $219 billion commercial real estate and corporate loan portfolio. Analysts expect that area to significantly deteriorate as the economy plunges into a recession.

Wachovia's record-setting loss translated into $11.18 a share, compared with net income of $1.6 billion, or 85 cents a share, in the period a year earlier.

Wachovia's quarterly loss appears to be one of the largest in banking history. It is bigger than the market values of 422 companies in the Standard & Poor's 500-stock index, and slightly more than the gross domestic product of Panama.

Of course, the bulk of the loss is tied to the write-down of good will, which reflects the amount that Wachovia overpaid for Golden West and other mergers when contrasted to their current value. The bank is trying to clean up its mortgage mess as it formalizes its deal with Wells Fargo.

Just more than a month ago, Wachovia's chief executive, Robert K. Steel, told investors that the company was strong enough to remain independent. But the collapse of Lehman Brothers and Washington Mutual cast a harsh spotlight onto Wachovia's troubles, and the sudden withdrawal of corporate deposits led regulators to seek a suitor. They found two.

Citigroup made an initial bid that would have required the government to cover potentially tens of billions in credit losses. But four days later, Wells Fargo swooped in with a higher offer that did not require federal support. It agreed to pay $15.1 billion in an all-stock deal that is worth about $14 billion now because of a decline in Wells Fargo's share price. Wells Fargo estimated that it would absorb about $74 billion in losses.

Shares of Wachovia fell 38 cents, or 6.2 percent, to $5.71, while Wells Fargo dropped $1.34, or 4.1 percent, to $31.30.

Wachovia's results follow a week of dismal bank earnings as the economy worsens. Mortgages and home equity losses continue to rise as housing prices have yet to find a bottom. Losses on auto and credit card loans have surged. And new problems, like losses on loans made to small corporations and commercial real estate developers, are just starting to surface.

Wachovia faces all of these issues in its banking operations. Profit from its big retail banking division fell 48 percent, to $857 million. Wachovia's corporate and investment bank was swamped in red ink and faces an uncertain future. It lost $703 million in the third quarter, in contrast to a $212 million profit in the period a year earlier.

Wachovia's capital-management arm posted a $499 million loss after it absorbed a $737 million hit from propping up its Evergreen money funds.

Wachovia also took a list of charges to resolve previous troubles. The bank paid $497 million to settle accusations that it improperly sold auction-rate securities and absorbed about $397 million in securities sales, including the evaporation of its Fannie Mae and Freddie Mac stock holdings. It also set aside $515 million for severance payments after it announced the elimination of more than 10,000 jobs to cut expenses.

Source: New York Times
Date: 23.10.2008 [202]
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