Wachovia shares up; analysts confident in new CEO

By Jonathan Stempel

NEW YORK (Reuters) - Wachovia Corp WB.N shares rose as much as 8.4 percent on Tuesday after analysts expressed confidence that new Chief Executive Robert Steel, whom many met for the first time a day earlier, can turn the bank around.

At a meeting in New York on Monday, Steel told analysts the fourth-largest U.S. bank does not plan to issue new capital and does not expect more top-level management changes, after Chief Financial Officer Thomas Wurtz and Chief Risk Officer Donald Truslow last month said they plan to leave.

Steel is trying to cut costs and sell non-core assets as Wachovia's losses mount from soured home loans. In July, the Charlotte, North Carolina-based bank posted a record quarterly loss of $8.86 billion and slashed its dividend 87 percent, the second reduction this year.

Steel, a former U.S. Treasury undersecretary of domestic finance and vice chairman of Goldman Sachs Group Inc (GS.N), succeeded Ken Thompson as chief executive last month.

"The (Monday) meeting was a reminder that somebody does not become vice chairman of Goldman Sachs without strong leadership and financial skills," Deutsche Bank Securities Inc analyst Mike Mayo wrote. "He seems to have the exact capital market skills that Wachovia needs for the next one to two years."

RBC Capital Markets analyst Gerard Cassidy wrote, "Steel made a good first impression. He brings a set of 'fresh eyes' and an objective view."

Robert Patten, an analyst at Morgan Keegan & Co, in a report called Steel "a credible, accountable, action-oriented leader," but said it was "way too early" for him to understand all the issues facing Wachovia and the potential solutions.

Mayo said Wachovia could face losses on 20 percent of its $122 billion portfolio of option adjustable-rate mortgages, equal to about $24 billion. Wachovia last month estimated potential losses on about 12 percent of the portfolio.

Option ARMs let borrowers make payments so low that their principal grows. As housing prices have fallen, such mortgages have left many borrowers owing more on their loans than their homes are worth.

Steel has said he would consider selling non-core assets to help generate $5 billion of capital by the end of 2009. Analysts have said such assets could include the Evergreen mutual fund business.

Wachovia last month also set plans to eliminate more than 10,700 jobs.

The bank ousted Thompson in June after several financial and legal problems, including a failed $24.2 billion purchase of mortgage specialist Golden West Financial Corp in October 2006 as the U.S. housing market was peaking.

Mayo rates Wachovia "buy," Cassidy rates it "sector perform," and Patten rates it "underperform."

In afternoon trading, Wachovia shares were up $1.34, or 7.8 percent, at $18.45, after earlier rising to $18.54. They began the year at $38.03.

(Editing by John Wallace)