By Jonathan Stempel
NEW YORK (Reuters) - Wachovia Corp
Wachovia, the fourth-largest U.S. bank, sold shares at a discount after boosting its reserves for credit losses 16-fold to $2.83 billion, and writing off $1.56 billion of debt, largely tied to the nation's housing slump and strained credit markets. Wachovia will cut 500 corporate and investment banking jobs this quarter.
"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 shares closed down $2.26, or 8.1 percent, to $25.55 on the New York Stock Exchange. The stock has slumped 32.8 percent this year, more than twice the 24-member Philadelphia KBW Bank Index's <.BKX> 14.7 percent decline.
Most other major U.S. banks are scheduled to report quarterly results by April 22. Several have already raised capital, or cut dividends and jobs.
Wachovia has suffered from its $24.2 billion purchase of mortgage lender Golden West Financial Corp in 2006, near the peak of the U.S. housing boom.
The bank said the housing slump is only half over, and might not hit bottom until the middle of 2009. Wachovia's investment banking unit, a large packager of mortgage debt and provider of loans to fund corporate buyouts, has also struggled. Standard & Poor's cut the bank's credit rating outlook to "negative."
"The Golden West deal could go down as one of the worst-timed transactions in recent memory," said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine. "Whenever you grow too fast, and an economic slowdown comes, you pay the price."
FIRST LOSS SINCE 2001
The first-quarter net loss was $350 million, or 20 cents per share, compared with a year-earlier profit of $2.3 billion, or $1.20 per share. The quarterly loss was Wachovia's first since 2001.
Excluding items, it lost $270 million, or 14 cents per share. On that basis, analysts, on average, expected a profit of 47 cents per share, Reuters Estimates said.
Revenue fell 5 percent to $7.9 billion, missing the average $8.37 billion forecast.
The bank cut its quarterly dividend by 41 percent to 37.5 cents per share from 64 cents, saving $2.1 billion of capital a year. In January, Thompson said the dividend was safe.
Wachovia sold $3.5 billion of common stock at $24 per share, or 13.7 percent below its Friday closing price. It also sold $3.5 billion of preferred shares with a 7.5 percent dividend that convert into stock at a 30 percent premium.
Both offerings may grow 15 percent, boosting the sum raised to $8.05 billion. The amounts are more than the $3.5 billion in preferred stock that Wachovia sold in February. Wachovia plans no stock buybacks this year.
The bank's set-aside of $2.83 billion for loan losses included $1.1 billion for adjustable-rate mortgages (ARMs), known as "Pick-a-Pay" mortgages, that give homeowners payment options, including paying less than interest and principal due. Results were hit hard in California, Golden West's former home.
Total net charge-offs quintupled to $765 million, and nonperforming assets more than quadrupled to $8.37 billion.
Thompson said Wachovia will de-emphasize option ARMs. "It's clear to me that we will move to a mortgage company with a balanced product line," he told reporters on a conference call.
Wachovia joins other struggling lenders such as Citigroup Inc
"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."
The corporate and investment banking unit lost $77 million in the quarter, including write-downs of $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 nonsubprime debt.
Wachovia ended March with a Tier-1 capital ratio of just 7.5 percent, up from 7.4 percent at the end of 2007, despite February's preferred stock sale. The ratio measures its ability to cover losses. Regulators deem 6 percent sufficient. Wachovia expects a ratio near 8.75 percent by the end of 2009.
Before the Golden West purchase, Thompson had largely shed his predecessor's reputation for bad acquisitions. He told reporters that Wachovia is not currently focused on mergers.
Profits in consumer and business banking -- Wachovia's largest unit -- fell 17 percent to $1.2 billion. Capital management profits rose 22 percent to $381 million, while wealth management profit increased 10 percent to $92 million.
(Additional reporting by Joseph A. Giannone and Dan Wilchins; Editing by Tim Dobbyn/Jeffrey Benkoe)