By Jonathan Stempel
BANGALORE (Reuters) - Wachovia Corp
The fourth-largest U.S. bank's move to replace Ken Thompson, who has presided over a 57 percent drop in its share price over the past year, also raised speculation the bank could become a takeover target.
Wachovia shares fell as much as 4.5 percent before recovering to trade down 1.4 percent, or 34 cents, at $23.46 late in Monday's session on the New York Stock Exchange.
"A key question is whether this raises the potential for sale," JPMorgan analyst Vivek Juneja said in a research note. "The challenge for a deal in this environment would be estimating the size of credit losses, but Wachovia has a very attractive regional franchise with $445 billion in deposits and some sizable businesses which would likely attract some buyers."
Lanty Smith, 65, who replaced Thompson as chairman last month, was named interim chief executive, Wachovia said on 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 on Sunday.
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 Inc's
JPMorgan Chase & Co
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.
Some read Thompson's firing as a sign that further write-downs or moves to raise capital could be in the offing.
"We view Wachovia's announcement ... as a sign that more bad news will be forthcoming when the company reports second quarter earnings," Morgan Keegan analyst Robert Patten said in a note, adding that he expects losses in the bank's "option" adjustable-rate mortgages to rise "significantly" in the coming quarters.
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 Inc
GOLDEN WEST TARNISHED
For many years, Thompson held a reputation for smoothly integrating acquisitions, such as the $13.7 billion purchase in 2004 of another Southeast U.S. bank, SouthTrust Corp.
But he has admitted to poor timing for his $24.2 billion purchase in October 2006 of Golden West Financial Corp, an Oakland, California, mortgage specialist and thrift.
Thompson will get severance equal to 16 months of his base salary, or $1.45 million, and get stock awards worth $7.25 million, the bank said in a regulatory filing.
Thanks largely to defaults on option-rate ARMs, which let borrowers pay less than the interest due, nonperforming assets have more than quadrupled from a year earlier to $8.37 billion. Wachovia has also suffered from its investment bank's exposure to structured products and commercial real estate.
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 U.S. prosecutors are probing 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 speed is "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.
(Additional reporting by Joseph A. Giannone and Christian Plumb in New York; Editing by Gerald E. McCormick, Dave Zimmerman, Gary Hill)