I never understood why Wachovia bought California-based Golden West Financial after the housing market was already showing signs of topping out. Golden
West’s star product is the option ARM, or “pick a payment” mortgage. A large percentage of those loans were made in
California, one of the states with the most bubbleicious housing markets. But acquire GDW it did … and now, it’s paying a heavy, heavy price.
Because of problems at the former GDW, and its own credit issues, Wachovia announced today that:
* It would lose $393
million, or 20 cents per share, in the first quarter. That’s a gigantic swing from the year-ago period, when Wachovia
earned $2.3 billion, or $1.20 per share. It’s also well below the 40 cents in earnings per share that analysts were
expecting. The firm increased its provision for credit losses to $2.8 billion from $408
million a year earlier.
* Net charge-offs jumped to 0.66% of average loans from 0.15% from a year ago. Nonperforming assets as a percentage of
loans, foreclosed property and loans held for sale quadrupled to 1.7% from 0.42% in Q1 2007.
* Wachovia is also slashing its quarterly, per-share dividend to 37.5 cents from 64
cents. And it’s hitting the market up for about $7 billion by selling common and convertible preferred shares.
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