It took one second-quarter report from Wachovia Corp. (nyse: WB) to remind Wall Street and consumers that the largest banks in America are far from being out of the woods with the credit crisis.
Today Wachovia, the nation's fourth-largest bank, announced it has suffered a $8.86 billion loss, and responded by cutting its dividend and saying it'll eliminate 10,750 jobs.
This burst the bubble on Wall Street some had, who for whatever reason thought the problems were already on the way to being fixed. The banks are far from it.
"Our reported results today are clearly a disappointing performance for which we take responsibility," said Wachovia's Chief Executive Bob Steel on a conference call with analysts. "We are serious about getting on top of these issues quickly and we believe we have a good grasp of the challenges facing the economy, the industry and Wachovia."
Steel added that he's going to cut $2 billion in costs by the end of 2009 and looking to sell parts of the company. He is also going to cut back on business customers only using the bank as a loan source, and target those using numerous services with the bank.
Wachovia announced on Monday that it was also going to quit using brokers to sell loans.
Most of Wachovia's problems today come from the horrendous decision to acquire Golden West Financial Corp. for a premium price of $25 billion in 2006. That was at the top of the housing boom right before it came crashing down. Along with the acquistion, Wachovia received $122 billion in failing Pick-A-Payment loans. Those types of loans allow a borrower to skip some of their payments.
As far as the dividend goes, Wachovia cut it from 37.5 cents a share to 5 cents a share. That will result in about $700 million in savings on a quarterly basis.
After write-downs and merger and restructuing charges, the company lost $2.67 billion, or $1.27 a share. That missed analysts expectations by a lot, as they looked for a loss of 78 cents a share on about $8.4 billion in revenue.
Including write-downs and charges, the company lost $4.20 a share for the quarter ending in June. Last year the company earned $2.34 billion, equal to $1.22 a share.
The company also said it will set aside $10.96 billion for credit losses, a significant increase over the $6.77 billion in the first quarter, as well as the $3.55 billion set aside last year in the same period.
Loans that the company feels are uncollectable exploded by 8-times over, now standing a $1.31 billion.
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