Polished veteran Steel named Wachovia CEO
NEW YORK (Reuters) - Wachovia Corp, hard hit by a downturn in the mortgage market, on Wednesday reached for a respected industry veteran to reverse its fortunes as it faces billions of dollars in second quarter losses.
Charlotte, North Carolina-based Wachovia, the fourth-biggest U.S. bank, named Robert Steel as its chief executive, replacing Lanty Smith, who was interim CEO following last month's ouster of Ken Thompson. Smith will remain the bank's chairman.
The announcement comes as Wachovia disclosed that it faces unexpected second-quarter losses of between $2.6 billion and $2.8 billion, or $1.23 to $1.33 per share. Analysts on average expected the bank to report a profit of 19 cents a share, according to Reuters Estimates.
The bank is groaning under the weight of a $121 billion portfolio of adjustable rate mortgages after buying California mortgage specialist Golden West Financial Corp in 2006, a purchase spearheaded by Thompson.
Steel, 56, most recently served as Under Secretary for Domestic Finance at the U.S. Treasury Department, a post where he worked closely with Treasury Secretary Hank Paulson, who recruited him to work there in 2006.
Both men are alumni of Goldman Sachs, the investment bank that managed to mostly sidestep a year-long credit crisis that roiled the world economy and led to billions of dollars in losses and writedowns at more than a dozen major banks.
But it is Steel's recent experience at Treasury, rather than his years at Goldman, that are likely to give him a grounding for stablilizing Wachovia and containing its losses.
Steel was considered Paulson's point man for dealing with escalating mortgage default and housing crisis of the last year, in particular an architect of capital raisings for hard-hit government-backed mortgage guarantors Freddie Mac and Fannie Mae.
"In some ways, I think there's a halo effect to having someone from the government, who didn't come from another bank," said Brenda White, a banker who helped sell a mortgage company to Wachovia in 2005. "But let's face it. They have to work through these problems."
Steel acknowledged as much, saying in a statement, "Clearly there are challenges ahead in our current climate."
For some, Steel's ability to mix among government and financial circles is a potent mix at a time when many analysts expect a period of increased regulation in the wake a credit crisis that threw the economy into reverse.
"The Wachovia board really reached for a star, and they caught one. He combines experience in government and finance," said Gene Ludwig, former head of the Office of the Comptroller and the Currency under Clinton and now partner in Promontory Financial, a Washington, D.C. consulting firm.
"We're in an environment where financial companies are likely to be even more regulated than they have been, so his understanding will help with that."
Prior to Treasury, Steel was a veteran Goldman Sachs senior executive, serving 28 years before he retired in 2004 as a vice chairman. Steel and Paulson worked closely together for decades, even as Steel's polished and genial manner contrasted with Paulson's bluntness.
But both shared a passion for work that aides said meant Steel could walk into Paulson's office at any time for a freewheeling exchange of ideas on anything from banking to financial market reform.
Steel worked closely and easily with lawmakers on legislation to strengthen the agency that regulates mortgage lenders Fannie Mae and Freddie Mac. But he had less success in trying to broker a plan for a fund to bail out structured investment vehicles, or SIVs, set up by banks and that idea eventually collapsed late last year.
Independently wealthy, Steel serves as a trustee of North Carolina's Duke University, from which he earned an undergraduate degree before taking a graduate degree at the
University of Chicago.
(With additional reporting by Glenn Somerville, Dan Wilchins, Jonathan Stempel and Patrick Rucker)
(Editing by Carol Bishopric)
