Wachovia shares fall; analyst says sell the stock
NEW YORK (Reuters) - Wachovia Corp WB.N shares fell as much as 10.3 percent on Monday after an analyst said investors should sell the shares of the fourth-largest U.S. bank and avoid the pain likely to result from repairing a balance sheet bloated with mortgage and real estate loans.
Robert Patten, an analyst at Morgan Keegan & Co who rates Wachovia "underperform," attributed last week's 30.9 percent increase in the shares to short covering by investors who had bet on a decline ahead of new Chief Executive Robert Steel's meetings with analysts today.
Patten said "nothing has changed fundamentally" at Wachovia. He said the bank has significant exposure to option adjustable-rate mortgages and commercial real estate loans, where defaults are increasing.
One-fourth of the bank's loan portfolio as of June 30, or $122 billion, was comprised of option ARMs, while one-tenth, or $48.4 billion, was commercial real estate loans.
Patten said these exposures will drive credit losses higher, requiring the Charlotte, North Carolina, bank to raise more dilutive capital. It has already raised $8.05 billion of capital this year and cut its dividend 92 percent.
"There are no easy fixes here, and in our opinion restructuring this balance sheet will take time in what is a difficult and volatile market and would probably not come without more pain for existing shareholders," he said. "We would be defensive and take profits."
Patten said last month's resignations of Chief Financial Officer Thomas Wurtz and Chief Risk Officer Donald Truslow suggest that Steel is approaching his job with urgency but might prolong the bank's recovery as a new management team gets a handle on the bank's problems.
Wachovia shares trade at 1.5 times tangible book value, compared with an average multiple of 1.4 for its peers, Patten wrote.
In late-morning trading, Wachovia shares were down $1.78, or 9.4 percent, at $17.20 on the New York Stock Exchange after earlier falling as low as $17.03. They began the year at $38.03.
(Reporting by Jonathan Stempel; editing by John Wallace)
