Wachovia may face new mortgage write-downs

By Jonathan Keehner and Jonathan Stempel

NEW YORK (Reuters) - As more banks report write-downs tied to the global credit crunch, analysts say Wachovia Corp WB.N may have losses lurking in an area that has garnered less investor attention.

The fourth-largest U.S. bank has in recent years aggressively tried to add market share by underwriting commercial mortgage-backed securities.

Demand for such securities has slid amid credit concerns, leaving dealers struggling to unload loans whose quality might be perceived as less sound than investors now demand.

Analysts have estimated Wachovia's net CMBS exposure at about $9 billion. They say the Charlotte, North Carolina-based bank could face a related fourth-quarter write-down as large as $1.5 billion.

"CMBS-related write-downs may wipe out earnings" in the quarter, wrote Howard Mason, an analyst at Sanford C. Bernstein & Co, on December 6. He projects a $1.5 billion write-down for the securities, on top of $488 million in the third quarter.

Meanwhile, Credit Suisse analysts led by Todd Hagerman wrote on December 20 that CMBS losses at Wachovia might reach $1 billion to $1.2 billion.

"Marks will increase further given the severe dislocations in the fixed income capital markets during the quarter, including materially wider CMBS credit spreads," the analysts wrote.

Wachovia spokeswoman Christy Phillips-Brown declined to comment. The bank is scheduled to report year-end results on January 22. Mason rates Wachovia "outperform," while Hagerman rates it "underperform."

TOUGH ENVIRONMENT

In the third quarter, Wachovia suffered $1.3 billion of write-downs from credit market turmoil, causing overall profit to decline 10 percent. Analysts had expected profit to rise.

Then on November 9, the bank said fourth-quarter results would likely also be hurt by its residential mortgage exposure.

It reported a potential $1.1 billion pre-tax loss tied to lower quality subprime mortgages, and said it might boost loan losses by $600 million largely because of falling home prices.

Analysts on average expect the bank to post a quarterly profit of 36 cents per share, excluding items, according to Reuters Estimates.

"I've been in the industry for 32 years, and I've been CEO for seven years, and this is as tough an environment as I've seen," Wachovia Chief Executive Ken Thompson said at a December 12 Goldman Sachs & Co financial services conference.

Wachovia boosted by 60 percent the amount of loans it placed in CMBS from January to September to $22.94 billion from $14.36 billion a year earlier, according to Commercial Mortgage Alert.