Wachovia Worsens but Still Survives
After initially announcing job cuts of 6350 employees in July, Wachovia (NYSE: WB) this week said that as many as 6950 employees may now be out of work. That doesn't include recent announcements of the departure of CFO Thomas J. Wurtz, and Chief Risk Officer Don Truslow. Wachovia is expecting the job cuts to cost as much as $650 million as it restructures it workforce. Recent days have seen the announcement of a class action lawsuit from shareholders, regulatory investigations, and increases in the amount estimated losses originally announced just a few weeks ago. Wachovia stock closed Monday at $18.21 per share off from its 52 week highs of more than $50.
In addition to revising the expected job cut figure, Wachovia also revised its second quarter losses from the originally stated $8.86 billion to $9.11 billion. This represents a loss of $4.21 per share. The stock remained steady on Monday, gaining a little over 1.5%. In July, Wachovia stock hit a low of just $7.80 per share. Investors who picked it up at that level have more than doubled their investment in a single month.
In the lawsuit, the firm Brodsky & Smith alleges that the Wachovia made "materially misrepresentations" that led to inflated stock prices. The suit is being brought on behalf of stockholders who purchased Wachovia's stock at these alleged inflated levels between May 8th, 2006 and April 11th, 2008. While the class has not been certified at this point, Wachovia has vowed to fight the suit vigorously and has increased their reserves for legal expenses by half a million dollars.
That, though, seems the least of Wachovia's worries at the moment. Federal and state securities investigators are pressing Wachovia on its municipal bond bid practices. You'll recall that on July 17th, regulators raided the company's headquarters after the company failed to fully comply with states' subpoenas regarding auction-rate securities, according to the regulators. The municipalities and states that purchased these securities were left holding the bag after the market for them collapsed earlier this year. Wachovia says they are in "active discussions" to settle the matter.
Going forward, the company expects losses from the mortgage portfolio it acquired in 2006 as part of its acquisition of Golden West to reach as high as 12%. The purchase of Golden West carried a $25 billion price tag back in 2006 before the mortgage and housing mess began spiraling out of control. Wachovia appears to have the resources to weather the storm and there is no sign of imminent collapse.