Wachovia Revises Q2 Loss Downward, Ups Mortgage Job Cuts

For the second straight quarter, North Carolina-based Wachovia Corp. (WB) revised a quarterly loss and said it lost more money than originally estimated; in this case, the revision was tied to a possible legal settlement of auction-rate-securities claims with state and federal regulators, according to a late Monday filing with the Securities and Exchange Commission. The bank is now reporting a Q2 loss of $9.11 billion to cover costs of a possible $500 million settlement, or a $4.31 per share loss, up from the $8.86 billion loss, or $4.20 per share, originally reported when the bank first released its second quarter results on July 22. In the first quarter, Wachovia had increased its reported loss to $708 million from an original $393 million because of a write-down tied to life insurance policies. The ongoing woes at Wachovia underscore a widespread set of problems for the bank that go well beyond its problematic exposure to the U.S. housing market — although that’s also a key source of pain, as well. In its regulatory filing, Wachovia disclosed that it also now plans to cut 6,950 jobs — 600 more than it had disclosed in July — with the additional cuts coming from mortgage operations and tied to the bank’s ill-fated $24 billion purchase of option ARM specialist Golden West Financial. The cuts affect about 5.8 percent of Wachovia’s 120,000-person workforce. On August 8, Wachovia said it would exit retail mortgage originations in 19 U.S. states, as it opts to refocus its mortgage banking operations in locations where it has a meaningful retail branch presence. Wachovia holds $122 billion in option ARMs, a substantial part of the bank’s $488.2 billion in total loans; no other U.S. bank has as much exposure to option ARMs in real-dollar terms. The North Carolina-based bank yanked its option ARM lending program earlier in the year, as mounting losses and continuing home price declines made the product unprofitable. Disclosure: The author held various put option contracts on WB when this story was published; indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.