Wachovia ousts CEO Thompson after losses mount

By Jonathan Stempel

BANGALORE (Reuters) - Wachovia Corp ousted its chief executive, sending the bank's shares lower on speculation that loan losses tied to the purchase of a big mortgage lender could widen.

The fourth-largest U.S. bank's move to replace Ken Thompson, who has presided over a 57 percent drop in its share price over the past year, also raised speculation the bank could become a takeover target.

Wachovia shares fell as much as 4.5 percent before recovering to trade down 1.4 percent, or 34 cents, at $23.46 late in Monday's session on the New York Stock Exchange.

"A key question is whether this raises the potential for sale," JPMorgan analyst Vivek Juneja said in a research note. "The challenge for a deal in this environment would be estimating the size of credit losses, but Wachovia has a very attractive regional franchise with $445 billion in deposits and some sizable businesses which would likely attract some buyers."

Lanty Smith, 65, who replaced Thompson as chairman last month, was named interim chief executive, Wachovia said on Monday. Ben Jenkins, 64, the vice chairman and head of Wachovia's retail and business bank, was named interim chief operating officer.

Wachovia said it asked Thompson to quit a few days ago, and made the formal decision to replace him on Sunday.

Thompson, 57, had been chief executive since April 2000, and until last month had been chairman for five years. He joins a growing list of top banking chiefs to lose their jobs since the global credit crisis began last summer, including Citigroup Inc's Charles Prince and Merrill Lynch & Co's Stanley O'Neal.

JPMorgan Chase & Co, which some investors have seen as a potential buyer for a weakened Wachovia, would be unlikely to pay much of a premium for it should it decide to do a deal, given Wachovia's ongoing problems, some analysts said.

Wachovia has recently raised $8.05 billion of capital, slashed its dividend, nearly doubled the amount of its first-quarter loss, and announced well over $1 billion of potential charges related to legal and regulatory matters.

Some read Thompson's firing as a sign that further write-downs or moves to raise capital could be in the offing.

"We view Wachovia's announcement ... as a sign that more bad news will be forthcoming when the company reports second quarter earnings," Morgan Keegan analyst Robert Patten said in a note, adding that he expects losses in the bank's "option" adjustable-rate mortgages to rise "significantly" in the coming quarters.

Smith, speaking on a conference call with reporters, said the bank doesn't believe it needs more capital, but "one never says never."

He said the board's decision followed a series of disappointments rather than any one overriding event, but it is "absolutely not" true that the bank faces a crisis.

Another lender with heavy mortgage losses, Washington Mutual Inc, on Monday said it would strip Chief Executive Kerry Killinger of his chairman's role. The largest U.S. savings and loan bowed to pressure from shareholders who voted for the change in April.

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