Wow. I am going from memory, but I am pretty certain that this is the mother of all quarterly financial services losses. And remember, Wachovia is merely a pretty big US bank, not a global capital markets behemoth like UBS, Deutschebank, or Citi.
From the Wall Street Journal:
Wachovia Corp. swung to a large third-quarter loss, as the bank posted $18.8 billion in goodwill write-downs and $8.71 billion in other charges and costs related to market disruption, investing and other crisis-related losses.
The Charlotte, N.C.,-based bank posted a net loss of $23.7 billion, or $11.18 a share, from a net profit of $1.62 billion, or 85 cents a share, a year earlier. The latest results include the goodwill write-downs, as well as $4.8 billion in charges to build credit reserves, $2.5 billion in market-disruption losses and $1.1 billion in costs from auction-rate securities buybacks, support for funds exposed to Lehman Brothers Holdings Inc. and exposure to government-sponsored entities.
Revenue fell 23% to $5.77 billion.
The results shed more light on how Wachovia’s condition became so bad last month that federal officials agreed to back a takeover by Citigroup Inc. after concluding that a potential failure posed a threat to the already-fragile U.S. financial system. The deal was scrapped when Wells Fargo & Co. came in with a much higher offer that required no government help.
Still, Chief Executive Robert K. Steel said, “Although this has been a challenging quarter, Wachovia’s underlying businesses remain solid and our franchise exceptionally attractive.”
Why does that remind me of Herbert Hoover’s remark, “The fundamental business of the country… is on a sound and prosperous basis”?
Further tidbits from Bloomberg. Note the considerable disparity between analysts’ expectations and the results announced:
The third-quarter loss was $23.9 billion, or $11.18 a share, compared with net income of $1.6 billion, or 85 cents, in the same period a year earlier, the Charlotte, North Carolina-based company said today in a statement. The loss was $2.23 a share excluding one-time items, versus the average loss estimate of 2 cents from 16 analysts surveyed by Bloomberg…
The bank wrote off $810 million in option adjustable-rate mortgages, up from $508 million in the previous quarter. Borrowers are not paying interest on about $9 billion of the loans, or 7.6 percent of the total outstanding.
Wells Fargo expects a cumulative loss of $26 billion from option ARMs, with more than 90 percent of those credit costs to be incurred by the end of next year. Steel in September estimated such losses would reach about $14 billion. Option-ARMs, which Wachovia no longer offers, allow borrowers to defer part of their interest payments, boosting the principal.