More Trouble Brewing at Wachovia after CEO ousted

Losses, losses and more losses appear to be the name of the game at Wachovia (WB). Quarter after quarter of losses and increased write down provisions, analysts and investors had hoped the worst had come and gone for the bank. With shares down almost 60% from their 52-week levels, sooner or later the patience well will run dry and for Wachovia's board, that day was today.

After claiming dividends would be safe and then subsequently cutting them (Link) Wachovia showed further chinks in an already severely weakened armor. Today's chink, the axe for CEO Kennedy Thompson. Analysts immediately started speculating that the worst is yet to come and 2nd quarter numbers will show another substantial loss. The company gave a statement that it isn't "in crisis" but shareholders have heard that for the last 2 quarters and having the board oust the CEO in an environment where economic data points have started to slightly rebound certainly makes a bold counter-point.

Analysts have also begun speculating about take-overs or buyouts with respect to Wachovia, but with a $50Billion market price tag, Wachovia doesn't seem the most attractive take over target. However, the credit crisis and sub-prime collapse have crippled some very respectable names over the months and if there's any truth to this speculation shareholders may indeed stick around in the hopes of getting an offer that would boost their holdings near the $40/share range.

It is hard to see in this environment a suitable bidder, although JPMorgan (JPM) seems to make the most sense. Coming off its buyout and rescue of Bear Stearns, JP could take another run in the regional banking sector by trying to get Wachovia on the cheap. However, all signs as of today seem to point to further losses and JP could find itself with Wachovia in the high teens after its next quarterly results hit the wire.

The Financial turnaround will come eventually, and it wont be quick. The major US banks are like tanker ships that can't turn on a whim, so Investors should feel solace and knowing they may get several chances to catch the rebound. Today's announcement at Wachovia shows that this still just isn't the time.

Disclosure: Author does not own WB

Wachovia posts Loss, brings down banking sector further

Wachovia (WB) joins the list of Financials that promise one thing and deliver another as it reports a quarterly loss and tries to raise more cash, $7Billion worth, with a further offering. The 4th largest bank in America gave Wall Street a loss of $0.20/share vs. an expected $0.40/share profit.

Revenue was also weak at $7.89Billion vs. $7.98 expected. The numbers do in fact speak for themselves and when you've got the CEO coming out and saying that he's very disappointed in the results it's not a good look for another Financial name. But wait! Wasn't this the same CEO that months prior promised that things would be better, promised that the dividend is safe, promised a turnaround? In fact it is! But good things aren't meant to last and Wachovia's $0.64/share dividend (a yield of almost 9% at current valuations) wasn't meant to last either.

With losses, come jobs cuts and dividend slashes. Much like it's bigger sibling in the banking world, Citigroup (C), Wachovia was forced, by this credit and mortgage mess, to cut its dividend by about 40% to $0.375/share. While still a respectable 5% yield, bringing it in-line with banking peers, the move comes as a blow to shareholders hoping for a turnaround in the near turn. Investors would hope in the best case that the high yield would correct itself based on a higher stock price, not on a dividend cut.

So what about the promises of the dividend being safe, made not too long ago? Can any Investor really know whether that was genuine or a 'buy some time' gesture? The fact remains that in the Financial Sector, throughout this Credit Crisis traders have seen many executives promise to hold the fort, then be unable to deliver. Most recently that was seen with Bear Stearns (BSC), where the executives relayed to Wall Street their 'solid as a rock' liquidity position, only to require a bailout days later by JP Morgan Chase (JPM) and the New York Federal Reserve.

Bright spots for Wachovia seem to be few and far between as the company took a further $2Billion in write-downs and set aside another $2.8Billion for future loan losses. One such bright spot, for the capital position of the bank is its new stock offering. While traders punished the company today, sending shares lower by almost 10%, selling almost $7Billion in stock (common and preferred) has to be seen as a longer term positive. Shoring up the balance sheet is priority number 1 for Wachovia, and once that's taken care of the bank can begin its rebound, its stock climb based on solid earnings, and it's return to higher dividend yields.

Disclosure: Author does not own any of the companies mentioned

Bank Of America & Wachovia see Profits Diminish but not Evaporate

The latest major US Financials to report earnings saw first hand the engulfing losses that have plagued many of their peers. Bank Of America (BAC) and Wachovia (WB) proved to be just as culpable in the US mortgage and credit mess as many of the other US banks and Investment Houses. Earnings for these two firms fell 95% and 98%, respectively.

Bank Of America, which till now, hadn't been hit by selling as hard as major competitor Citigroup (C), acknowledged a multitude of mortgage based losses and set liquidity provisions on its balance sheet to absorb even more. Now, while not as headline grabbing as the bigger losses of its peers, BAC managed to rack up over $5Billion in mortgage related write-downs and a further $5.5Billion in related trading losses. Even so, the company managed to eek out a small profit. $0.05/share vs. last year's mark of $1.16/share (Profits of $268Million vs. last year's $5.26Billion).

Revenue falling was also a concern as a 31% top line dive for any type of company can not be seen as healthy. Bank Of America also set aside over $3Billion for future related troubles (read: more losses due to bad loans), but it seems to have seen the worst for now. Analysts still expect somewhere over $4/share in earnings in FY2008, pegging a forward P/E for the battered bank at just under 9. In-line with what the markets expect to pay for the big Financials. BAC's cause was helped today by a 4% run-up (over 11% reversal from the open) in its stock.

If there's a less greedy bank option in the US, and one ripe for ownership for a longer haul reversal, it is probably BAC.

Another financial competitor, Wachovia, also posted a drastic decline in profit, but like BAC-and unlike others in the sector-it in fact still reported a profit! Profit numbers were minuscule at $51Million ($0.03/share) vs. a year ago result of $2.3Billion ($1.20/share). That's a spectacular 98% drop. However, it does show that Wachovia had some wits about itself to not completely jump in with both feet into a saturated sub-prime market. The revenue slide was not as great as most peers, coming in only 19% lower than a year ago at $6.3Billion.

Now, that's not to say all is well here, as in fact Wachovia increased its provisions for more losses many times over, 7 times in fact, to $1.5Billion, as well as recording a loss of $1.7Billion on loan related investments. That is a future provision of almost 1x current reported losses. This number is far more worrisome when compared to larger competitor BAC, which set provisions of only 0.3x current reported losses. Management however, reiterated that while poor results were in fact delivered today, the goals for the future and the expectations on those goals, remain very much in tact.

The Major Financials in this market-climate seem like a laundry list of the heaviest hit securities, and deservedly so, but some more than others, and a quick glance at profit declines and loan loss provisions shows which were in fact the greediest. While Citigroup tries to dig itself out of massive losses, others are simply dealing with profit cuts and slightly larger provisions. JPMorgan Chase (JPM) is an example of the latter, and along with BAC and WB seems to be the better candidate for a recovery into the later stages of this year and next.

Disclosure: Author is long BAC, WB