By Jonathan Stempel
NEW YORK (Reuters) - Wachovia Corp
"These actions are not without cost and I wish they were not necessary, but they are," Chief Executive Ken Thompson said on a conference call.
Wachovia, the fourth-largest U.S. bank, is the latest major lender battered by the global credit crunch.
It has also been hurt by Thompson's ill-timed, $24.2 billion purchase of adjustable-rate mortgage lender Golden West Financial Corp in 2006, near the peak of the U.S. housing boom. The bank said the nation's housing slump is only half over, and might not hit bottom until the middle of 2009.
Shares of Wachovia fell $2.21, or 7.9 percent, to $25.60 in pre-market trading.
The first-quarter net loss was $350 million, and resulted in a loss of 20 cents per share, Charlotte, North Carolina-based Wachovia said. That compared with a year-earlier profit of $2.3 billion, or $1.20 per share.
Excluding special items, the loss was $270 million, or 14 cents per share. On that basis, analysts' average forecast was a profit of 47 cents per share, Reuters Estimates said.
Revenue fell 5 percent to $7.9 billion, short of the average forecast for $8.37 billion.
Wachovia set aside $2.83 billion for credit losses, up 16-fold from a year earlier, and its investment banking unit suffered $1.56 billion of write-downs.
Chief Financial Officer Tom Wurtz said the markets and investment banking unit will cut 12 percent of staff this quarter, on top of similar cuts since the beginning of 2007.
The bank cut its quarterly dividend 41 percent, to 37.5 cents per share from 64 cents, saving $2.1 billion of capital a year. Thompson in January had said the dividend was safe.
Wachovia's capital raising includes public offerings of common and convertible preferred stock, and it said the offerings are oversubscribed. It said it would not buy back stock for the rest of the year.
"They needed to do this," said Lee Delaporte, director of research at Dreman Value Management LLC in Jersey City, New Jersey, which invests $19 billion and owns Wachovia shares. "They're heavily exposed to some difficult areas."
Wachovia joins struggling lenders such as Citigroup Inc
Wachovia ended March with a Tier-1 capital ratio of 7.5 percent, up from 7.4 percent at the end of 2007, despite selling $3.5 billion of preferred stock. The ratio measures its ability to cover losses. Regulators consider 6 percent sufficient.
The bank said the $2.83 billion set aside for credit losses included $1.1 billion for "Pick-a-Pay" mortgages, a Golden West specialty that give homeowners a variety of payment options, including paying less than the interest and principal due.
Net charge-offs quintupled to $765 million, and nonperforming assets more than quadrupled to $8.37 billion.
Corporate and investment banking suffered a $77 million loss in the first quarter, compared with a profit of $550 million a year earlier.
Results in this unit included $1.56 billion of write-downs, largely for structured products, including collateralized debt obligations. The unit is a large packager of mortgages into securities and provider of loans to fund corporate buyouts.
The write-downs included $521 million tied to commercial mortgages, $339 million for subprime mortgages, $309 million for loans to fund corporate buyouts, $251 million for consumer mortgages, and $144 million for non-subprime debt.
Profit in consumer and business banking, Wachovia's largest unit, fell 17 percent to $1.2 billion. Profit rose 22 percent in capital management to $381 million, and rose 10 percent to $92 million in wealth management, Wachovia said.
In October, the bank completed the acquisition of St. Louis-based AG Edwards Inc for $6.4 billion, creating the second-largest U.S. retail brokerage.
Net interest margin fell to 2.92 percent from 3.06 percent a year earlier but rose from the fourth-quarter's 2.88 percent. Wachovia ended March with $783.6 billion of assets.
Through Friday, Wachovia shares were down 26.9 percent this year, compared with a 10.9 percent drop in the Philadelphia KBW Bank Index <.BKX>. The shares were down 53.2 percent since Wachovia announced the Golden West purchase in May 2006.
(Additional reporting by Dan Wilchins; Editing by Maureen Bavdek and John Wallace)