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Wachovia reports loss, cuts 10,000 jobs

John Dimsdale Jul 22, 2008

Wachovia reports loss, cuts 10,000 jobs

John Dimsdale Jul 22, 2008


Kai Ryssdal: The buzzword on Wall Street last week as you might remember was “better than expected,” as in “Gee, Citigroup lost $2.5 billion last quarter, but still, its earnings report was better than expected.”

Today, we got a reminder that there’s still plenty of worse than expected news out there and Wachovia dumped it all in one dose.

It wasn’t too long ago that Wachovia seemed like the little bank that could. It outgrew its regional base in North Carolina and expanded fast. In the second quarter a year ago, it earned $2.25 billion.

One housing bust and a subprime crisis later though, it seems that growth was a tad too fast, as Marketplace’s John Dimsdale reports.

John Dimsdale: Two years ago, Wachovia bought a high-flying California bank, Golden West. To keep growing, Wachovia needed to move west and Golden West was cashing in on a wave of adjustable-rate subprime mortgages.

Now, banking consultant Bert Ely says Wachovia is stuck with billions of Golden West’s bad loans.

Bert Ely: Wachovia paid too much for it and bought right at the peak of the housing market and then they’re also experiencing the same kind of credit problems generally that a lot of other companies are, but their results have been clearly made worse by that acquisition two years ago of Golden West.

Wachovia announced it will slash its stock dividend by nearly 90 percent and lay off more than 6,000 employees. Wachovia’s stock price took an early hit, but recovered later in the day.

Investment manager Bernie McGinn thinks that’s because investors realized Wachovia’s red ink was mostly due to subprime mortgages, not checking accounts or credit cards.

Bernie McGinn: Subprime mortgages aren’t the only business these guys do. There are other businesses that are profitable that help them out.

Mike Miller is CEO of Community One Bank in Ashboro, North Carolina. He says smaller regional banks like his are more insulated than a fast growing Wachovia. And his didn’t deal in subprime mortgages.

Mike Miller: That’s a totally different part of the food chain than the commercial bank, community bank that you see on Main Street.

Wachovia also announced it won’t do any more business with mortgage brokers, those freelancers who brought in most of the bank’s subprime mortgages. Only its own staff will sell mortgages now.

In Washington, I’m John Dimsdale for Marketplace.

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