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There’s a silver lining for Wachovia

Dan Grech Jul 22, 2008
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There’s a silver lining for Wachovia

Dan Grech Jul 22, 2008
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TEXT OF STORY

Bob Moon: The country’s fourth-largest bank is reporting quarterly losses of nearly $9 billion — and more than 6,000 workers will lose their jobs, as a result. The bank is also slashing its dividend by 87 percent.

But here’s what Wall Street seems to keep looking for in these numbers: Some kind of silver lining. Marketplace’s Dan Grech tells us the news may not be as dire as it first appears.


Dan Grech: It was an ugly quarter for the nation’s fourth-largest bank, but Wachovia has been preparing for the worst. The bank added nearly $10 billion to its reserves to cover losses on bad mortgages.

Banking consultant Bert Ely says Wachovia’s latest move, to slash dividends, will build up that cushion.

Bert Ely: This strikes me as the prudent thing to do at this time. You don’t want to pay out capital at a time when you’re experiencing significant losses.

Ely says lower dividends are actually in shareholders’ interest:

Ely: Wachovia needs to maintain its capital strength so that it can ride through this storm and not get taken over at a very low price to its stockholders.

Wachovia’s problems stem from its $25 billion purchase of Golden West Financial, a California mortgage lender known for its Pick-A-Payment loans.

I’m Dan Grech for Marketplace.

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