Wachovia ousted its chief executive, following growing legal troubles and loan
losses tied to the purchase of a big mortgage lender just
before the housing market imploded.
The fourth-largest U.S. bank's move, announced Monday, to replace Ken Thompson sent its shares down over 3 percent on concern that it could signal more bad news ahead for the bank, which has seen its stock tumble 58 percent over the past year.
"We would not be surprised to see some more changes among the top ranks at Wachovia over the coming months," Morgan Keegan analyst Robert Patten wrote in a research note, adding that he expects losses in the bank's "option" adjustable-rate mortgages to rise "significantly" in the coming quarters.
Lanty Smith, 65, who replaced Thompson as chairman last month, was named interim chief executive, Wachovia said Monday. Ben Jenkins, 64, the vice chairman and head of Wachovia's retail and business bank, was named interim chief operating officer.
Wachovia said it asked Thompson to quit a few days ago, and made the formal decision to replace him Sunday.
In midday trading, Wachovia shares were down 3.8 percent, or 90 cents, to $22.90 on the New York Stock Exchange.
Thompson, 57, had been chief executive since April 2000, and until last month had been chairman for five years. He joins a growing list of top banking chiefs to lose their jobs since the global credit crisis began last summer, including Citigroup's Charles Prince and Merrill Lynch's Stanley O'Neal.
JPMorgan Chase, which some investors have seen as a potential buyer for a weakened Wachovia, would be unlikely to pay much of a premium for it should it decide to do a deal, given Wachovia's ongoing problems, analysts said.
Wachovia has recently raised $8.05 billion of capital, slashed its dividend, nearly doubled the amount of its first-quarter loss, and announced well over $1 billion of potential charges related to legal and regulatory matters.
Smith, speaking on a conference call with reporters, said the bank doesn't believe it needs more capital, but "one never says never." He said the board's decision followed a series of disappointments rather than any one overriding event, but it is "absolutely not" true that the bank faces a crisis.
Another lender with heavy mortgage losses, Washington Mutual, on Monday said it will strip Chief Executive Kerry Killinger of his chairman's role. The largest U.S. savings and loan bowed to pressure from shareholders who voted for the change in April.
Golden West Tarnished
Wachovia has tripled in size since Thompson engineered the 2001 merger of First Union with Wachovia.
For many years, he held a reputation for smoothly integrating acquisitions, such as the $13.7 billion purchase in 2004 of another southeast U.S. bank, SouthTrust.
But Thompson has admitted to poor timing for his $24.2 billion purchase in October 2006 of Golden West Financial, an Oakland, California mortgage specialist and thrift.
Wachovia has also suffered from its investment bank's exposure to structured products and commercial real estate.
Mounting loan losses pushed Wachovia in April to cut its dividend 41 percent, and raise $8.05 billion in capital. Smith said the bank doesn't believe it needs more capital, but that "one never says never."
Mounting Losses
Since the capital-raising, Wachovia nearly doubled its first-quarter loss to $708 million because of a write-down tied to life insurance policies. The quarterly loss was Wachovia's first since 2001.
It also said it may take a $1 billion charge because of a federal court ruling over leases, and agreed to pay up to $144 million to settle federal allegations over telemarketers.
Meanwhile, the Wall Street Journal said federal prosecutors are investigating the bank over alleged laundering of drug proceeds by Colombian and Mexican money-transfer companies. The bank has said it has a strong program to stop money laundering.
Smith declined to say how long the search to replace Thompson will take. He said Wachovia will consider internal and external candidates, and that speed was "not the objective."
Through Friday, Wachovia's market value had fallen by half to $47.4 billion from about $96 billion when it announced the Golden West purchase in May 2006, Reuters data show.
"Wachovia has lost an incredibly large amount of market capitalization, and that came in part from how it chose to structure its business," Fitzsimmons said.
"At this stage," he added, "Wachovia needs to aggressively address the problems in California. Many investors blame Ken for buying Golden West at the top of the market, and that was a tough thing to get around." Fitzsimmons rates the bank "hold."