Is it time to Say Goodbye to your Wachovia stock?

[Taur]

Or, maybe at least get your money out?

Looks like it may be over a trillion to bail out the bankers, sorry for the Wamu pun there.

UPDATE: After WaMu Seizure, Wachovia Faces Market's Fears

UPDATE: After WaMu Seizure, Wachovia Faces Market's Fears
Dow Jones
September 26, 2008: 02:20 PM EST

(Includes company comment in sixth paragraph, more information about Wachovia's Pick-A-Pay loans, and further details throughout.)

By Marshall Eckblad

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- The seizure of Washington Mutual Inc. (WM) is quickly becoming a problem for Wachovia Corp. (WB).

After federal regulators on Thursday night seized the West Coast thrift and its bloated book of failing home loans, investors trained their focus on Wachovia, which itself holds piles of risky mortgages.

Wachovia shares recently traded down 30% to $9.55, while the cost of insuring Wachovia's debt against default quickly rose to distressed levels.

"When I woke up this morning, the thing I was most concerned about...was contagion" from the WaMu seizure, said Nancy Bush, a bank analyst at NAB Research.

Wachovia's shares have also been hurt by the suddenly uncertain outcome of the U.S. Treasury's proposal to rescue banks by purchasing their toxic mortgages and mortgage-backed securities.

A spokeswoman for Wachovia said the bank believes that that "the Treasury plan under consideration by Congress is a constructive and important step toward restoring confidence and stability in our financial system."

Regardless, Wachovia looks to be in substantially better shape than Washington Mutual before WaMu failed. Wachovia has a loyal and largely affluent banking clientele, and a sizable business of offering investment services to clients through financial advisors. WaMu, by contrast, was a saving-and-loan, and had far fewer business lines.

What's more, Wachovia is hardly running out of capital, says Bush.

But a bank's being well capitalized, she said, "is no longer enough" to reassure nervous depositors.

Just ask WaMu.

The Seattle savings-and-loan had seen depositors pulling their cash from WaMu at dangerous rates during September, before regulators seized the bank on Thursday.

And yet Wachovia's bread-and-butter retail banking business, by contrast, may be moving in the opposite direction of WaMu's, even as Wachovia's stock slides amid fear.

Wachovia added 226,000 retail checking accounts in the second quarter, a Wachovia spokeswoman said, and a brow-raising 745,000 since June - or nearly a million new checking customers since the second quarter began. Wachovia held average deposits of $435.5 billion in the second quarter.

"We are focused on managing our company and serving our customers with excellence," a spokeswoman for the company said. "We are aggressively addressing our challenges and are working to strategically strengthen and manage capital and liquidity in this challenging environment."

Wachovia's Pick-A-Problem

But Wachovia also holds more than $122 billion in so-called Pick-A-Pay or Option ARM mortgages, as of July 22. Pick-A-Pays are an unwieldy type of loan that have fast become notorious for producing high levels of losses, as well as high levels of risk for banks that wrote them.

Wachovia's Pick-A-Pay loans give some borrowers the option of deferring portions of their monthly interest payments, thereby increasing their loans' balance. While Wachovia has stopped writing the loans altogether, Pick-A-Pays have proved highly problematic for both WaMu and Wachovia since home prices have fallen around the nation even as many Pick-A-Pay loan balances have risen.

Wachovia famously acquired the Pick-A-Pay business in 2006, when it purchased West Coast lender Golden West, at the height of the housing boom, for $25.5 billion.

That deal quickly has quickly come to haunt Wachovia's franchise. Defenders of Golden West, a pioneer in offering Option ARM mortgages, say that Wachovia changed the product's underwriting standards, and issued the loans to riskier borrowers. But employees at Wachovia who marketed Pick-A-Pays say that the loans do not deserve to be lumped with other risky loans, including now-infamous subprime loans.

Those defenders of the Option ARM loans maintain that when banks underwrite these loans correctly, they are both safe and lucrative. But as the credit crisis has widened, Pick-A-Pays have undeniably produced rising delinquencies and - perhaps more importantly - unnerved investors.

Of Wachovia's $122 billion in Pick-A-Pays, 5.78% are considered " nonperforming," or more than 90 days past due, as of this year's second quarter. Another 5.2% of the portfolio is delinquent by less than 90 days. As of last year's second quarter, only 1.03% of the Pick-A-Pay portfolio was classified as nonperforming.

Wachovia's $44 billion in traditional mortgages, by contrast, show a nonperforming rate of 0.98%, up from 0.35% in last year's second quarter.

Of the entire Pick-A-Pay portfolio, 58% of the outstanding balances are tied to properties in California, and another 10% are tied to homes in Florida - two states hardest hit by declines in home values.

Washington Mutual had similar, though more severe, problems with its Option ARM loans. Six percent of WaMu's $52.9 billion portfolio was nonperforming through the second quarter, up from about 1.5% in last year's second quarter.

With Pick-A-Pay loans producing losses for Wachovia that reach into the billions, and more likely to come, Wachovia's board has shaken up the firm.

Wachovia ousted its long-time CEO Ken Thompson in July and replaced him with Bob Steel, a former undersecretary at the U.S. Treasury and a veteran Goldman Sachs Group Inc. (GS) banker. The firm has also announced a new chief financial officer as well as a new chief risk officer.

While CEO Steel has worked quickly to reassure investors and has promised to make the Charlotte firm more transparent, Wachovia's shares have continued their wild ride as investors appear unsure what to make of Wachovia's long-term prospects. The shares dropped below $10 in July, and did so again Friday.

- By Marshall Eckblad, Dow Jones Newswires; 201-938-4306; marshall.eckblad@ dowjones.com

(END) Dow Jones Newswires
09-26-08 1420ET
Copyright (c) 2008 Dow Jones & Company, Inc.

Any chance the Government could just do a 2 trillion dollar rebate program for all America, instead?

[stevew]

I thought you had your portfolio maxed out with elmo dolls?

[Gary Gorski]

Who knows what could happen at this point - apparently Wachovia is in talks for deal with Citigroup, Wells Fargo or a Spanish bank and as of right now the talks are being reported as a legitimate deal as opposed to what happened with WaMu and JPM. So much depends on if Congress for once can actually figure out how to get something done. Make no mistake, buying Golden West was a massive mistake and Wachovia is paying dearly for it now. If you do own shares of Wachovia I would pay real close attention to what Congress does or doesn't do this weekend and keep tabs on what is going on with WB and Citi/WF/any other bank that wants to buy the good stuff that WB has. If you have stockbrokers or whatever its probably a good time to talk to them and see what they have to say about this or any other stock you might own - buy, sell, hold, whatever - the worst thing you could probably do for your money right now if you own stocks is stick your head in the stand.

[SirFozzie]

They're saying that there will be no bailout until Wednesday. Ouch.

[Gary Gorski]

I hope that Wednesday is secret government code for Sunday based on what the talking heads seem to think will happen if something isn't done on Monday.

[sterlingice]

Considering how the last few weekends have been, it seems like it's more likely to happen Saturday or Sunday...

SI

[Wolfpack]

Rather interesting and somewhat surprising to see this happen considering Wachovia (ex First Union before they bought the prior incarnation of Wachovia and took the name) got into a substantial merger war with Bank of America (ex NCNB, then NationsBank, before they bought San Fran-based Bank of America). Between them the two essentially built the skyline of Charlotte as we know it today and the rather odd notion that Charlotte essentially rivals New York in banking clout in the country.

[Taur]

I hope everyone managed to sell their Wachovia stock on friday


Wachovia stock loss 82% Monday to finish at $1.84.

Looks like Citigroup will now be buying out Wachovia for $1 per share.

[Tekneek]

I was reading about the price being $1 a share this morning, so the price was already agreed before the drop. Most of the day that I was watching, Wachovia stock wasn't even trading (at least not that I could find online). I held off closing my Wachovia account in order to not be part of any possible run on the bank, but I will likely be closing out all accounts with them tomorrow afternoon.

We're putting at least some of our money with BB&T, after seeing the article about their CEO being critical of the bailout scheme...

That's why Allison, the chairman and chief executive of BB&T Corp., submitted a 14-point letter Tuesday to all 535 members of Congress with a simple message regarding the proposed $700 billion bailout.

"There is no panic on Main Street and in sound financial institutions," he wrote. "The problems are in high-risk financial institutions and on Wall Street."

He said that it is important that "Congress hear from the well-run financial institutions, as most of the concerns have been focused on the problem companies. It is extremely important that the bailout not damage well-run companies." Allison's opinion is seconded by local community-bank officials and community-bank trade groups.

"Community bankers did not create this financial crisis, but our banks and communities are clearly feeling the impact," the Independent Community Bankers of America said in a statement. "As the fundamental drivers of local economies -- we could be in a strong position to help resolve this crisis."

I don't completely agree with everything he says, but it is nice to see somebody out of the banking industry take a contrary position on this issue.