June 24, 2008 / 7:57 PM / 11 years ago

Wachovia hires Goldman Sachs for help on loans

June 24 (Reuters) - Wachovia Corp WB.N, the fourth-largest U.S. bank, said on Tuesday it has hired Goldman Sachs Group Inc (GS.N) for advice on its loan portfolio, after the housing slump caused mortgage-related losses to soar.

“Goldman is performing analytics on our loan portfolio to evaluate various alternatives,” said Christy Phillips-Brown, a Wachovia spokeswoman. She declined to comment further.

The hiring came after reports last week that Wachovia also retained Goldman to help it find a new chief executive. Wachovia ousted Ken Thompson from that position three weeks ago following a series of financial, legal and regulatory problems, less than a month after replacing him as chairman.

Wachovia said it ended March with $480.5 billion of net loans, up 14 percent from a year earlier.

Nonperforming assets, however, more than quadrupled over that time to $8.37 billion, largely because of mounting defaults on adjustable-rate mortgages that let borrowers pay less than the interest due. Such low payments can cause amounts owed on so-called “option ARMs” to rise even as home prices fall.

“This implies to us that the bank will mark down a sizable package of loans so that they can be more easily sold,” wrote Richard Bove, an analyst at Ladenburg Thalmann & Co. “This could be a meaningful charge to second-quarter earnings.”

Option ARMs, which Wachovia calls “Pick-a-Pay” mortgages, were a specialty of Golden West Financial Corp, a California lender that Wachovia bought for $24.2 billion in October 2006 just as the five-year housing boom was peaking.

Problems with the $121.2 billion option ARM portfolio, as well as with other loans, led Wachovia in April to raise $8.05 billion of capital and cut its dividend 41 percent. They also resulted in a $708 million loss from January to March, the bank’s first quarterly loss since 2001.

Wachovia shares had through Monday fallen more than 55 percent this year, prompting frequent speculation the bank could be a takeover target.

Wachovia shares rose 94 cents to $17.86 on the New York Stock Exchange shortly before the close.

Reporting by Jonathan Stempel in Bangalore; editing by Richard Chang

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