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From Staff Reports
Wachovia Corp. (WB), the fourth-largest U.S. bank, stunned investors yesterday (Monday) by posting a surprise first-quarter loss, announcing a dividend cut and revealing plans to raise $7 billion in capital.
Chief Executivesaid the "precipitous decline in housing market conditions and unprecedented changes in consumer behavior" damaged the bank's results. Also inflicting damage was Wachovia's $24.2 billion acquisition of adjustable-rate mortgage lender Golden West Financial Corp. in 2006, a move that was made at the pinnacle of the U.S. housing boom.
The Charlotte, N.C.-based bank reported a net loss available to common shareholders of $393 million, or 20 cents per share, compared with a year-earlier profit of $2.3 billion, or $1.20 per share. Excluding "one-timers," the loss was $270 million, or 14 cents per share. Revenue on a taxable equivalent basis fell 5% to $7.9 billion.
The consensus estimate from analysts was for Wachovia to post a profit of 48 cents a share on revenue of $8.37 billion, according to Reuters Estimates.
Wachovia's shares plunged $2.26 each, or 8.13%, to close at $25.55. They traded as low as $24.65.
Because yesterday was the first day in what's expected to be a big week for corporate earnings reports, the markets punished financial shares, sending the Standard & Poor's Financial Sector down 2.4%. In fact, financial shares in the Standard & Poor's 500 Index skidded for the fifth-straight day, reaching their lowest point since March 17, when the group of banks, brokers, insurers and real-estate investment trusts dropped to an almost five-year low, Bloomberg News reported.
All 23 banks and 28 of 30 diversified financial companies fell, Bloomberg said.
"Today all the troubles were in financial services," Linda Duessel, a market strategist at Federated Investors in Pittsburgh, told Reuters. "This is expected to be a big week in earnings and it feels like the calm before a potential storm when we get more earnings information."
Wachovia said it set aside $2.83 billion for credit losses – that's up from $177 million a year earlier and nearly twice the $1.5 billion the banking firm set aside in the fourth quarter. Net charge-offs (loans it doesn't expect to be repaid) quintupled from a year earlier, reaching $765 million.
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To conserve $2 billion a year in capital, Wachovia is slashing its quarterly dividend 41%, from the current 64 cents all the way down to 37.5 cents per share. To raise capital, Wachovia will include public offerings of common and convertible preferred stocks.
The company ended the quarter with a Tier-1 capital ratio of 7.5%, up from 7.4% at year-end, and well above the 6% level that regulators say indicates a bank that is considered to be "well-capitalized."
The ratio measures a bank's ability to cover losses.
"The news out of Wachovia would suggest the environment has probably deteriorated faster in recent weeks, to a greater extent than people may have anticipated," Jonathan Armitage, the New York-based head of U.S. large-cap equities at London-based Schroders PLC, told Bloomberg. Banks now face "a tougher environment for the consumer, whether it's housing- or mortgage-related, or direct-to-consumer lending."
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