Wall of Shame: Wachovia CEO Bob Steel
Just two weeks ago, Wachovia CEO Bob Steel told Mad Money viewers that out of $500 billion in loans on the bank’s books, only $10 billion were bad. Today, Citigroup bought Wachovia “for a pittance,” Cramer said, because the actual total was $42 billion, and the FDIC was about to seize Wachovia.
Now Cramer’s not calling Steel a liar. He believes that Steel believed. After all, the CEO bought $16 million worth of Wachovia stock on the open market and never hedged with options.
And Steel wasn’t at the helm when Wachovia made those bad loans. Cramer allowed for the fact that maybe Steel didn’t yet have systems in place to properly value the loans.
The nail in the coffin, though, was probably JPMorgan’s massive devaluation of Washington Mutual’s loans. The numbers were much lower than those at which Wachovia was valuing its own portfolio, and many of the loans were comparable to WaMu’s. Once that happened, Cramer said, “Wachovia was toast.”
More than anything, Cramer was mad at himself for letting his viewers down. He trusted Steel, who he’s known as a solid financier for 25 years, and he urged viewers to do the same. Cramer should have been more critical, more skeptical – especially during a time like this – but he wasn’t.
“I let you down,” Cramer said.
But what else went wrong? How could Steel have been in a position where he could come on the show and tout his, more or less, healthy bundle of loans?
Lack of transparency.
There are, of course, regulators for this. But the SEC and multiple bank examiners all signed off on Wachovia’s books. Even Steel, a former number two at Treasury, couldn’t see how bad his own balance sheet was. He just didn’t know what was there.
If the truth about Wachovia’s bad loans had been on the books, then there would have been no way Steel could have been so positive about his bank’s situation. The only thing investors can trust is a company’s financials, Cramer said, and like Lehman Brothers, Wachovia’s financials “just didn’t reflect reality.”
Cramer thought that if Paulson’s plan passed, and there’s no guarantee that will happen now, then Wachovia could dump its troubled assets on the government and move forward with its deposits and good loans. Cramer believed in the financials and Steel. But “in this era, that’s a level of trust that’s misplaced.”
“I let my judgment of Steel cloud my thinking about Wachovia,” Cramer said.
Maybe Steel, ever bullish as all CEOs are, took advantage of Cramer. But in the end, he said, Cramer’s the last line of defense for Homegamers, and he holds himself responsible.
As for Bob Steel, he has to be held accountable in his own right. And for not knowing just how in trouble his bank was, and watching Citigroup snatch it up at a huge discount, the CEO has been added to the Mad Money Wall of Shame.
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