Wachovia to Get $7 Billion Infusion: Report

Wachovia Corp (WB) on Sunday evening announced that it would move its quarterly earnings report up to Monday morning ahead of market open, coinciding with a weekend report in the Wall Street Journal that said the Charlotte, NC-based bank was set to receive anywhere from $6 billion to $7 billion in additional capital. The Journal reported that the nation’s fifth largest bank by market cap was likely to issue shares to an unnamed investor group priced at a 15 percent discount to Wachovia’s $27.81 closing price on Friday. While Wachovia has not commented to the press on the rumors, it did say on Sunday that it would move its earnings release up to Monday morning; the company had been slated to release its first quarter results this Friday. Sources close to the company have suggested to HW that the company will “most definitely” release full details in the morning. Wachovia has been facing increasing trouble tied to ongoing turmoil in the U.S. mortgage market, and in particular has had problems associated with an ill-timed acquisition of option ARM mortgage specialist World Savings. The bank booked a $1.5 billion provision for credit losses during the fourth quarter of 2007, citing significant deterioration in the residential housing market. Despite ballooning loss reserves, Wachovia found itself unable to keep up with a sharp rise in non-performing assets during the fourth quarter. NPAs as a percentage of loans (1.08 percent) during the quarter exceeded the loss coverage ratio (0.98) for the first time since the credit crisis began. News of an investment at Wachovia comes on the heels of a $7 billion capital infusion to Seattle-based Washington Mutual last week, which saw private equity firm TPG take a significant stake in the banking giant. It’s unclear if Wachovia is planning to pull back — or exit altogether — its wholesale mortgage banking operations. If so, Wachovia would follow Washington Mutual, which cut its wholesale operations as part of its investment deal — although Wachovia’s wholesale mortgage footprint is considerably smaller than that of Washington Mutual. Sources close to the situation that spoke with HW said that discussions regarding the company’s wholesale mortgage business had been on the table at one point, but that much of the focus has since been placed on option ARM lending — and on the company’s substantial commercial real estate exposure. Wachovia has been looking in recent weeks to make a sharp pullback from option ARM lending, which can quickly put borrowers in a so-called “negative equity” situation (see earlier HW coverage here). During the housing slump, such an outcome is driving many borrowers to simply walk away from their homes, rather than face the often arduous and time-intensive process that can be associated with performing a loan workout. Disclosure: The author held no positions in WB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.