Wachovia: We Just Lost $8.9 Billion!

Wachovia just lost $8.9 billion dollars, and will cut 6,350 workers as the credit crisis keeps on truckin’, says the Associated Press. This is um, a lot more than Wall Street had been expecting. Earlier this month, Wachovia had projected a $2.6 billion loss.

“These bottom-line results are disappointing and unacceptable,” Chairman Lanty Smith said in a statement. “While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility.”

Hang in there, Lanty.

Wachovia loses $8.9B, cuts 6,350 workers, dividend
[BusinessWeek]

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  1. timmus says:

    They cut 6,350 workers? How in the hell does the company continue to even legally operate? Who is extending their line of credit?

  2. admiral_stabbin says:

    They’re claiming they have appropriate capitalization to maintain this back-to-back quarterly loss. What I would love to know is two things:

    1 – Why did they buy my favorite firm, A.G. Edwards?
    2 – Are the CPAs that underestimated losses by $6.3B in the line for the chopping block?

  3. FangDoc says:

    My Wachovia branch is inexplicably building a new branch office less than a block from their old one, and roughly the same size. Excellent use of the interest on our money.

    Now with this news, I’m definitely looking at credit unions.

  4. diamondmaster1 says:

    Does anyone have any idea just where all these cut workers in the various sectors are going? Thousands upon thousands are reportedly losing jobs–just where do they all end up?

  5. AnxiousDemographic says:

    I guess the next thing we’ll be hearing regarding Wachova’s chairman Lanty Smith is the gigantic bonus he’ll be getting this year, quickly followed by news of a $staggering retirement package. Ya’know, because he managed to keep the company from going bankrupt after he screwed it all up.

  6. Skankingmike says:

    that is a sucky loss.

    Personally this is the only bank i will do business with. They’re friendly and have saved me from ID theft twice with no hassle. (once when i was in college and then again 3 years ago when some gas station attendant stole my card number by rubbing it :P).

  7. doctor_cos wants you to remain calm says:

    @admiral_stabbin: In answer to #2, they will probably be promoted.

  8. liquisoft says:

    I’m not very good with economics. It was never my strong suit in high school and I never touched it (academically) afterwards. So please excuse me if this sounds ignorant, but how does an institution whose sole job is to hold peoples’ money end up losing nearly $9 billion? Is it all just shoddy loans?

  9. vatica40 says:

    I’m likely one of the 6350, so I’m feeling pretty good about this right now :)

  10. james says:

    Lost US 8.9B?!? Is this one quarter? Can we send Lanty to Baghdad for a year or two? He may be more useful building houses in the war zone.

  11. christoj879 says:

    @diamondmaster1: Soylent Green.

  12. JeffDrummer says:

    In other news, stocks are up big over the past week, gold and oil are down. Airline stocks rallied HUGE today.

    Sure we might hit a minor recession, but remember, after the recession, we should see great growth again, look at 2001-3, 1991, 1980-2, afterwards were great periods of growth.

    @liquisoft: Luckily, my field is largely economics and accounting. And you are mostly right, however it is not economics, but accounting. First a little background on the nitty gritty: Accounting rules are fairly simple, assets need to equal liabilities plus owners’ equity. Most accounting firms use an “allowance for bad debts” which is just what it sounds like. People don’t pay back loans all the time, some funds are just unrecoverable, unfortunately most banks underestimated these bad loans. These mortgage “write-downs” that you have been hearing of it nothing other than the accounting entry that makes the bad debt go away since they won’t be recoveries them.

    So the entry from Wachovia (very simplistically) would look like this:

    Mortgages Receivable 8.9bn
    Bad Mortgage Expense 8.9bn

    Bad Mortgage Expense 8.9bn
    Cash 8.9bn

    Any accountants here will surely go berserk over that over-simplification but that’s about it.

    As for the economics. People bought mortgages they could scarcely pay for. The payment went up as risk went up (banks use risk based pricing all the time for loans), and the homeowners ended not being able to pay the debt. All as their house’s price fell below the debt they had on it. So defaulting seemed like the only way out.

    I work for HSBC which is very wise with loans. Not a huge fan of the company, but hey, they are doing A-OK right now.

  13. JeffDrummer says:

    That accounting equation didn’t come out looking right, the Mortgages Receivable and 2nd Bad Mortgage expenses should be debits.

  14. That’s so weird, because I found $8.9bn in a bathroom at JFK yesterday!

    Do you guys want some?

  15. spikespeigel says:

    @loquaciousmusic: Just enough for a tank of gas.

  16. dohtem says:

    @spikespeigel: It’s just a mental thing. Gas Prices aren’t that high!

  17. TangDrinker says:

    The Charlotte Observer is reporting job losses of 10,750 (6350 active, 4,400 open/contractors), but Wachovia’s still going ahead with the completion of their new headquarters (which is a block away from their old headquarter). It’s going to be interesting around here in the Ol’ Queen City for the next few months…

  18. Phexerian says:

    I’m not a big fan of Wachovia. They harassed the hell out of my father. He was on limited fixed income and he had a hard month and fell behind for one month. But each month after, he payed for the month plus the late fees for being a month behind. So Wachovia was making PURE PROFIT, yet they still decided to call him EVERY DAY, and I mean EVERY DAY, to get him to pay one extra month. No matter how many times he told them he can’t, fixed income, they still harassed him everyday. That is one bad company. I hope they go under. Of course the fed of the government may bail them out, yet they won’t bail out the borrowers. Pompous pathetic punk pansy politicians.

  19. Techguy1138 says:

    There is going to have to be an investigation on this. If only one month ago wachovia gave guidance that they were going to loose 3 billion and today they are announcing 9 billion there is to big of a disconnect.

    Mortgages don’t fail in 30 days nor debts become uncollectible. That much bad debt showed up on someone books a while ago. They may have deliberately misled investors.

  20. poetry1mind says:

    I totally agree with Techguy1138. This is something fishy going on. If they “projected” 2.6 bill loss less than a month ago, how did it jump to over 8 Billion? Someone known about this and just didn’t care.
    I have a bank account with Wachovia. I don’t have much experience with other banks (being that wachovia was my first) but they have always been good to me…for the most part.
    It seems like things are just getting worse.

  21. ealexand says:

    …and our stock is up 30%! It makes SO much sense

  22. CaptRavis says:

    Displaced workers…well if they have accounting degrees every regulatory agency, federal and state seems to be hiring examiners and support staff. I suppose since the horse has bolted it is time to close the barn door. However, I suppose it will wind up more like the fox guarding the chicken coop in the end.

    / hillbilly metaphors (happens everytime I go home)

  23. timmus says:

    @Phexerian: Earlier today in another thread I talked about NOT giving your real phone number out, or using a phone number that can easily be blocked. Wachovia abusing your father’s phone line perfectly illustrates why this is good advice.

  24. bohemian says:

    @Phexerian:
    @Techguy1138:

    No Watchovia should not be bailed out. Let them burn. I don’t think it would have quite the panic that Bear Stearns would have in both timing and circumstance. The only people who should be getting any bail out are the customers for the amounts covered by FDIC if the bank actually fails.

    Yea the sudden more than tripling their losses in thirty days just smells bad. There really isn’t a legit excuse. This needs to be investigated and hopefully someone going to prison.

    Anyone this dishonest or inept should not be given more money to piss away.

  25. asynja says:

    @FangDoc: That’s nothing, I’m afraid. Here at home base in Charlotte, there are several places where there’s a Wachovia next to a Wachovia. And I don’t mean ATMs…lol.

  26. 3drage says:

    Credit unions are an excellent choice in this time of bank closures.

    Things to look for, NCUA accred, decent amount of money in reserves, and a really good security team in IT.

  27. picswim says:

    As a Wachovia employee, its my obligation to point out they expected an operating loss of 2.6 billion, which is about what WB reported. This was all presented to Wall Street two weeks ago when we picked up Bob Steele. The other billions are called “goodwill charges”. Look it up.

    Wachovia is not in any danger of failing as many of the losses come from the Pick-a-Pay mortgages we inherited from Golden West. Yes, that was a bad buy and we’re paying for it. No, Pick-a-Pay mortgages are not subprime mortgages, they are option arms.

    Moving on… the core businesses remain strong and our deposit base continues to grow. All 4 main business units reported nice profits, the losses stem from setting aside cash in case mortgages fail. We’ve also accounted for potential losses from the lawsuits that Consumerist seems to know about before we do. I’m not proud of our behavior any more than you are

    I’m not worried about WB failing, but keep your eyes on WaMu.

    Spending half my time in Charlotte and the other half a couple hours north and our former home base, I can agree with asynja there is a Wachovia branch or building within spitting distance of any block uptown. BofA’s not much better though.

  28. Saving_is_fun says:

    @admiral_stabbin:
    @doctor_cos:

    CPAs do not review forecasts. They come in on the back end and look at the actual results. Not to mention the results of a quarter are not audited, but rather reviewed (implying a lower level of comfort).

    @Techguy1138:

    As for the reported losses, I think it warrants a second look at the first guidnace which did mention an impairment loss, which was the majority of the $9 billion reported today.

  29. Sudonum says:

    @loquaciousmusic:
    Damn, I was going to start looking in all the couches at my local Wachovia’s.

  30. Wireless Joe says:

    They cut 6,350 workers, and probably not one of them was responsible for the mess. Anyone who actually had any culpability is busily crafting golden parachutes for themselves with the money they’re saving on all the fired tellers’ and janitors’ salaries.

  31. Eldritch says:

    My family quit dealing with Wachovia after my parent’s social security numbers and bank numbers were stolen off the back of a UPS truck in a box. What the fuck bank mails out BOXES full of information like that? USING UPS?!

    Anyway, please, don’t let Commerce be next… there will be no more banks to turn to!

  32. FLConsumer says:

    Wachovia’s treated me quite well over the years. Ended up with Wachovia due to various buyouts. Then again, my company has substantial deposits with Wachovia and I get handled by their private banking division (Wealth Management). Not sure what life’s like on the lower end of the totem pole with these guys.

    Either high man or low man on the totem pole, they still don’t pay squat for interest rates.

  33. As previously noted the loss is an allowance.

    Don’t know how much of that “loss” is current write offs versus projecting future write offs.

    Trust me, somewhere, deep in the bowls of these banks, is this nerdy accounting senior VPO dude going bonkers with projecting future writeoffs versus government bailouts versus stock buyback schemes versus golden parachutes…. in other words never trust a writeoff.

  34. alstein says:

    By comparison, WaMu only lost $3.3 billion (source: CNN)

  35. AngelofMotrin says:

    i stopped doing business with wachvoia long ago. i just use them now as a local deposit and get my money out of there asap.

  36. No more bailouts. Bankers didn’t want government regulation, they screwed up. Let them burn.

  37. Egakino says:

    @Wireless Joe: This

    It’s the people at the bottom that get hurt every time. These companies die, good people lose jobs, bad people steal with “golden parachutes”, and investors are left with only oil to invest and that in turn effects the bottom segment far worse than any other.

    If you think this is the only industry that will have this big of an impact on the worlds economy then you are very very wrong. God help us if one of the other shoes drop soon.

  38. Egakino says:

    @Egakino: edit for coherence: If you think this is the only major industry strung out waaay too thin then you are very very wrong. God help us if one of the other shoes drop soon.

  39. chemman says:

    I read an article in Forbes about 1 1/2 to 2 years ago that said Charlotte was one of the best places to move to due to the thriving banking industry there. I sure hope people didn’t take that advice. I’m amazed everyday that I read about more and more massive cuts at US companies (I’ve been apart of three of them in the last ten years, and survived them all luckily). What are all these people going to do for jobs, our economy is just not creating enough jobs to support our society’s lifestyle.

  40. ZekeSulastin says:

    Maybe I’m missing the big bold text, but what exactly is it about credit unions that make you all bleat about them akin to the sheep in Animal Farm? It’s like some sort of military cadence! I’ve had my fair share of annoying unwarranted phone wars with my own when things got screwed up, and I certainly didn’t feel any more valued than with any other banking-type institution.

    At least USAA has been fine so far.

  41. bonzombiekitty says:

    @liquisoft: A bank’s sole job is not to hold onto people’s money. A bank’s job is to make money for itself. It does this by investing. The money it invests comes from getting people to give it money to invest. You get a return on your savings account because the bank uses a large portion of your money to invest and you’re given part of the money it makes. Much of the money invested goes into mortgages. Wachovia seems to have gotten caught up with other banks and invested in bad mortgages.

  42. parrotuya says:

    They drank the subprime Kool-Aid. Now they are whining. WAAHHHH!. Waterboard that CEO!

  43. vdragonmpc says:

    Wachovia has a special name in my area. (one issue is I work for a bank now)

    I have several long term IRAs through them that were not followed correctly. You see I did not choose to bank with these jokers. Community bank was bought by Southtrust bank and then Wachovia bought Southtrust. I was out of town when a notice came about my IRA accounts.

    They took my interest rate of 6.59% and changed it to 2.99 stating that the rate was the only thing they had that was comparable. Well I wonder if I had a mortgage or credit card at 10% interest in THEIR favor would they have lowered the rate? I fought tooth and nail over it but to remove the money I will pay a penalty that is more than the interest lost.

    As soon as the IRAs renew they will be removed from the bank and sent to a safer institution. USAA comes to mind along with either my credit union or work location.

    There is a reason people hate them.

  44. dragonvpm says:

    This seems like further proof that no one knew what was what with a lot of the mortgages that were bundled into securities. A quarter is long enough for a bunch of those loans to have reset and ended up going bad.

    Honestly, I take a little exception to the constant characterization of the sub-prime loans as “bad loans” from the outset. My folks and I used those to build several duplexes which are now producing a nice bit of income and I bought my first house using a sub-prime loan. At the time I bought my house, I remember being told that they weren’t sure what the interest rate bump would be after 3 years, but it probably wouldn’t be more than 1 or 2%. Fortunately for me, I planned ahead and I was ready to refinance to a conventional loan before the loan reset (iirc it went up by 6 or 7%) although I remember struggling to refinance it at the very end because Countrywide refused to waive the pre-payment penalty that came with the loan (I was running my own business at the time I got it so my options were more limited than they are now). There was a fairly narrow window (maybe a month or so) when I could refinance before the loan terms reset. Amusingly, after I did refinance, Countrywide ended up buying my new loan even though they hadn’t been interested in working with me directly when I was looking to refinance.

    IMO, banks themselves have created a big chunk of this mortgage crises, not just by making loans to weak clients, but also by creating loan products that were borderline abusive and then refusing to renegotiate or adjust them so that they don’t become impossible to pay for. You wouldn’t think it would be that hard to review their loans and make sure that none of them are seeing, say, double the monthly payment after their interest rate gets reset. Why not just keep the loan from going “bad” and keep getting money from homeowners instead of foreclosing (and incurring those expenses), losing the income from the payments made and quite often losing money selling foreclosed homes in a weak market.

    There current approach (the “Damn it you WILL pay what you agreed to or else”) just doesn’t seem to make sense when they knew that a lot of those loans weren’t designed to be held on to for more than a year or two in the first place.

  45. snowburnt says:

    @JeffDrummer:

    It seems like it would be much better to restructure the loans so that people that can afford it will afford it. Rather than make the people they gave mortgages to that were risky (even those that might have been borderline) not be able to afford the loan, change the loan so that the people can afford it. The bank stands to make much more money from someone paying a mortgage than foreclosing on a house…I’d imagine writing off mortgage losses wouldn’t get the same kind of money over the long term that someone with a 15 or 30 year mortgage would get.

    I guess nobody really thinks in the long term anymore…

  46. snowburnt says:

    @dragonvpm: Going along with what you are saying a lot of people were flat out lied to when they were getting their loans. They weren’t informed that the rates had even a possibility of sky rocketing. it’s irresponsible at best.

  47. Scoobatz says:

    Maybe this was said already, but how did they confirm a $8.9 billion loss less than ONE MONTH from a $2.6 billion loss estimate? How’s it even possible for these numbers to be so far apart in such a short timeframe?

  48. 3drage says:

    People, please stop saying drank the kool aid. That’s quite possibly the dumbest thing people say short of Beavis and Butthead quotes.

  49. incognit000 says:

    Good to know that a bank which gouges it’s customers and has no qualms about lending out money to people who can’t possibly pay it back considers a 8.9 bil loss as “unnacceptable.”

    I wonder how much that loss might be mitigated if they fired all the executives responsible and replaced them with hamsters, who work for much less pay and are too cute to hold responsible for financial disasters.

  50. picardia says:

    At least a few hundred of that appear to have come out of my IRA. I clutch my statement and moan.

  51. ILoveVermont says:

    By law, I do believe that if you tell a creditor (not just a debt collector, but the creditor itself) to stop calling you about your debt, they have to stop. Otherwise, it’s illegal harassment.

  52. hustler says:

    I’d like to know how much Lanty took home in the form of a bonus last quarter.

  53. Phexerian says:

    @timmus: Sounds like a good idea. I wonder though, how could they contact you if there was a problem with your account? I guess they could send a letter in the mail. The other thing I would be worried about, is that if for some reason, you had to fight them in court, they could use it against you in court saying that, you pulled out a loan and didn’t give us accurate contact information. I guess the argument to that is, give them a phone number that is only one number off, so you can plead that it was a mistake.

  54. xsmasherx says:

    @bonzombiekitty: “You get a return on your savings account because…” – yabbut I don’t get a return on my savings account. I remember, in the 80’s, getting 8 to 10 percent on savings and CDs – but those days are long gone. I get a fraction of a percent in interest on my savings account – if, that is, I kept over $3k in it. Otherwise I pay a monthly penalty for the pleasure of loaning them my money.

  55. phrits says:

    Incidentally, picking on Lanty is largely misplaced. He stepped in as interim CEO when Ken Thompson was asked to leave only last month. And Ken may have taken more of the fall than was really his sole due, but I suspect he’ll land on his feet.