Trader Talk

Wachovia's Loss: Signal Of More To Come From Banks?

On Friday, General Electric surprised, now it's Wachovia Bank's turn. They missed by a mile: a loss of $0.14 from continuing operations, consensus was a gain of $0.40. They are cutting their dividend 41 percent and seeking to raise $7 b in capital, so the poor earnings will be diluted even more.

Our David Faber reporting the sale will involve 3.5 b in common stock at $24 a share, and 3.5 b in convertible with a 7.5 percent coupon. Wachovia was trading in that range earlier, but is now higher at $25.70, still below the $27.81 it closed at on Friday.

To a certain extent, we have heard this before: an increase in the loan loss provisions ($2.1 b in new provisions), largely due to losses in residential real estate (again, California and Florida are the main culprits), along with more losses on mortgage backed securities and their derivatives. Credit quality continued to deteriorate by an measure, particularly non-performing assets, which increased 54 percent from the prior quarter, according to RBC Capital.

On the other hand, we thought we were facing the worst last quarter; that's obviously not the case, and this is part of the continuing adjustment of expectations. Now the increase in provisions for loan losses is a signal that banks are expecting more losses.

Small declines (1 to 2 percent) in other banks, like Bank of America  and Citigroup.


1) Despite statements of support from the G7 over the weekend, the dollar is considerably weaker this morning. I will be speaking with French Finance Minister Christine Lagarde on our air shortly after the 9:30 AM open.

Despite the dollar weakness, commodities are weaker as well.

2) Blockbustermaking a bid for Circuit City for at least $6 a share, they claim in cash; Blockbuster down 12 percent, Circuit City up over 25 percent to $6.16 on heavy volume. They may also turn to Carl Icahn for an additional equity infusion, Blockbuster's CEO says.

3) While we're young: Delta and Northwestmight unveil details of their (endless) merger discussions--and possibly a deal--by Tuesday, according to the Journal. Delta and Northwest both up about 5 percent on light volume.

4) Deutsche Bankmay be seeking to sell $20 b of leveraged buyoutdebt, similar to what Citigroup was reported seeking to do last week.

Questions?  Comments?