Wachovia loses $8.86 bln; slashes jobs, dividend

By Jonathan Stempel

NEW YORK (Reuters) - Wachovia Corp, the fourth-largest U.S. bank, posted a record $8.86 billion quarterly loss on Tuesday, slashed its dividend 87 percent and announced the elimination of more than 10,700 jobs after losses tied to mortgages soared.

Shares of Wachovia nevertheless soared more than 27 percent after Chief Executive Robert Steel said he does not plan to issue common stock to raise capital, and has many ways to generate $5 billion of fresh capital by the end of 2009 without selling assets at bargain prices. The shares closed up $3.61 at $16.79.

Wachovia has been among the lenders hardest hit by the U.S. housing crisis, following a disastrous $24.2 billion purchase in October 2006 of California mortgage specialist Golden West Financial Corp.

"Credit deterioration was worse than expected," said Gerard Cassidy, an analyst at RBC Capital Markets, who has a "sector perform" rating on the bank.

"Wachovia is in capital-preserving mode, which means it has to shrink its balance sheet, leading to a vice-like effect on income statement," he added. "Revenue growth will likely shrink, even as operating expenses rise. This will lead to lower earnings, or possibly losses, in the future."

The second-quarter net loss for Charlotte, North Carolina-based Wachovia equaled $4.20 per share and compared with a profit of $2.34 billion, or $1.22, a year earlier.

Excluding items, the loss was $2.67 billion, or $1.27 per share. Analysts expected a loss of $1.30 per share, Reuters Estimates said. Wachovia had on July 9 projected a $2.6 billion to $2.8 billion loss excluding items.

Results included a $6.06 billion write-down of goodwill because asset values declined and reflected a $4.19 billion increase in reserves for bad loans.

They also included a $975 million charge related to the tax treatment of leveraged leases, $936 million of losses from disrupted capital markets, a $590 million charge for other legal matters and $391 million of losses on securities sales.

On a conference call, Steel said results were "clearly a disappointing performance." He pledged that Wachovia would be "realistic and balanced and cautious," as well as "prudently paranoid," in working through the credit environment.

Speaking later to journalists, Steel and Chairman Lanty Smith said they planned to keep Wachovia independent.

DIVIDEND, JOB CUTS

Wachovia slashed its quarterly dividend to 5 cents per share from 37.5 cents, saving about $700 million of capital per quarter. It has lowered the dividend 92 percent this year.

The bank said it plans to cut 6,350 jobs, affecting more than 5 percent of its roughly 120,000 employees. Wachovia said it will also eliminate 4,400 open positions and contractors.

Wachovia said it has already cut 2,000 retail mortgage jobs and plans to eliminate 4,400 more in the next year.