Wachovia Corp.’s subprime and credit crisis woes appear to be increasing at a rapid rate. Yesterday, the U.S. bank reported a record quarterly loss of $8.9 billion. The loss reflects, among other things, Wachovia’s ill-advised acquisition of Golden West Financial Corp. in 2006. Bloomberg News has reported that the second quarter loss marks the first time, in at least 20 years, that Wachovia has experienced two consecutive quarterly losses. Wachovia’s stock has lost 65% of its value so far this year.
In response to these developments, Wachovia hopes to dispose of certain parts of its business. Last week, reports suggested that the bank might even be willing to part with Wachovia Securities. In addition, Wachovia hopes to pare expenses by $2 billion, has drastically cut its dividend and has announced plans to cut some 6,000 workers. The company also stated its intent not to fill approximately 4,400 positions that are currently open.
During the last month, Wachovia has experienced serious problems at its securities division. Last week, Wachovia Securities’ headquarters in St. Louis was raided by a task force of state regulators investigating the company’s auction rate securities practices. During that raid, at least 12 Wachovia Securities’ executives and employees were issued subpoenas to provide evidence to the task force. In other developments, Wachovia was hit with a class action lawsuit regarding the Evergreen Ultra Short Opportunities Fund. Wachovia recently decided to liquidate that fund and distribute remaining assets to investors. The Evergreen Ultra Short Opportunities Fund had lost approximately 20% of its value since the beginning of 2008. Obviously these problems come at a bad time and could impede Wachovia’s restructuring plans.
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