UPDATE 3-Wachovia names Steel CEO, sees $2.6-2.8 bln loss

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By Jonathan Stempel and Dan Wilchins

NEW YORK, July 9 (Reuters) - Wachovia Corp WB.N, the fourth-largest U.S. bank, named senior Treasury Department official Robert Steel chief executive, and said mortgage and legal problems would result in a $2.6 billion to $2.8 billion second-quarter loss, much larger than many analysts expected.

Steel, 56, has been under secretary for domestic finance since October 2006, playing a critical role in helping Treasury Secretary Henry Paulson manage the U.S. housing crisis and mounting losses for the banking industry.

The crisis has hit Wachovia hard. A $24.2 billion purchase in 2006 of California mortgage specialist Golden West Financial Corp saddled it with $121 billion of poorly performing home loans -- the main reason for the projected quarterly loss.

Steel's blend of government and private-sector experience might be a boon for Wachovia, analysts said. Before joining the Treasury Department, Steel had worked at Goldman Sachs Group Inc (GS.N), where Paulson was chief executive. Steel retired as Goldman vice chairman in February 2004.

"The Wachovia board really reached for a star and they caught one," said Eugene Ludwig, a Comptroller of the Currency under President Bill Clinton and now managing partner at consulting firm Promontory Financial Group in Washington, D.C. "Financial companies are likely to be even more regulated than they have been, so his understanding will help."

Wachovia said the quarterly loss will equal $1.23 to $1.33 a share, excluding an expected write-down of goodwill that will not affect capital levels. Analysts, on average, had expected a profit of 19 cents per share, according to Reuters Estimates.

Steel's hiring fills a five-week void atop Wachovia since the June 2 ouster of Ken Thompson. Other big financial players to replace CEOs because of mortgage problems include Citigroup Inc (C.N), Merrill Lynch & Co MER.N and UBS AG (UBSN.VX).

"Clearly, there are challenges ahead in our current climate, but I am encouraged that most areas of the company continue to perform well," Steel said in a statement.

The hiring may dampen speculation that the Charlotte, North Carolina-based bank might be sold soon.

Lanty Smith, who will remain chairman and led the search for Thompson's replacement as interim chief executive, affirmed his commitment to Wachovia's independence on Wednesday. He said in a statement Steel would manage Wachovia well "through the current environment as a strong and independent company."

Steel and Smith were unavailable for immediate comment, a Wachovia spokeswoman said.

"At least now the market knows how big the losses are going to be and having a number is better than having no number," said James Ellman, president of hedge fund Seacliff Capital in San Francisco. "But it may also be a negative for the stock. If you put a new CEO in place, it means the board will usually want to let the guy have a chance."

Wachovia shares rose 41 cents to $14.70 in after-hours trading. The shares had fallen $1.25, or 8 percent, to $14.29 in regular trading, leaving them down 63 percent for the year.

MORTGAGE LOSSES DRAG