“These bottom-line results are disappointing and unacceptable,” Chairman Lanty Smith said in a statement, according to the Associated Press. “While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility.”
Analysts had been expecting a loss since earlier this month, when Wachovia ousted CEO Ken Thompson and replaced him with former Treasury Undersecretary Robert Steel. At the time, the bank had projected a loss of $2.6 to $2.8 billion.
Earlier this week, analysts had predicted a loss of 78 cents per share for the bank. Instead, the $8.9 billion drop is the equivalent of a $4.20 loss per share. Excluding $6.1 billion in write-downs of the value of its intangible assets, the company still lost nearly $2.7 billion, or $1.27 per share, according to the AP.
Many of Wachovia’s troubles stem from its $24 billion acquisition of California mortgage lender Golden West Financial in 2006, at the peak of the housing market. Golden West was known for “pay-option” mortgages that allowed buyers to pay less-than-full interest on new mortgages. Those buyers have since defaulted at a higher-than-average rate, especially as the housing market has sagged in California and Florida.
Wachovia said Tuesday that it plans to cut its quarterly dividend from 37.5 cents to 5 cents per share, which will save about $700 million per quarter. It also will cut 6,350 workers and eliminate 4,400 open positions and contractors, as part of a plan to reduce its 2009 expenses by $1.5 billion.
“We are being prudently paranoid,” Steel said in a conference call with analysts, according to CNN.com. “We understand our issues and challenges, and we are already addressing them.”
Kevin Fitzsimmons, an analyst with Sandler O’Neill & Partners, said the announcement measures were part of the new CEO’s attempt to “put a fence around the bad stuff.”
“This is Steel’s only chance to get all the bad news out there and take dramatic steps before his honeymoon period is over,” Fitzsimmons told CNN.com.
Earlier this week, Wachovia said it would stop offering mortgages via brokers, a step other banks, such as Bank of America and National City Bank, have also taken recently.