Wachovia posts unexpected 1Q loss, slashes dividend

Wachovia Corp. is seeking to raise $7 billion in capital via a stock offering and has slashed its dividend. The news comes on the same day the Charlotte, N.C.-based bank reported a first-quarter loss of $393 million, or 20 cents per share.

In the same period last year, Wachovia earned $2.3 billion, or $1.20 per share.

Analysts had forecast, on average, that Wachovia would earn 40 cents per share in the latest quarter.

Content Continues Below

Wachovia, which has been expanding in Greater Baltimore, grew deposits 8 percent last year and moved up to third place among banks for market share in the region at the end of 2007, according to Federal Deposit Insurance Corp. data

Net interest income rose to nearly $4.8 billion in the first quarter from $4.5 billion in the year-ago period.

Noninterest income fell to $3.1 billion from $3.7 billion in the first quarter of last year.

The latest results include writedowns of $2 billion related to the ongoing credit crisis.

Wachovia also set aside $2.8 billion in the latest quarter to cover problem loans. The provision largely reflects severe deterioration in the residential housing market, particularly in California and Florida.

"I'm deeply disappointed with our first-quarter results, but I am confident we're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path," said CEO Ken Thompson. "The most painful decision was to reduce the dividend because it adversely affects our shareholders. But we believe the long-term benefit to shareholder value outweighs the disadvantage of the dividend reduction as we fortify our balance sheet against continued instability in the housing and capital markets."

Meanwhile, the bank says it will eliminate about 500 jobs in its corporate and investment banking unit, or roughly 12 percent of the division's workforce. Since the beginning of 2007, Wachovia has cut about one in four jobs in the global markets and investment banking group within its corporate and investment banking division.

Wachovia is reducing its dividend to 37 cents per share from 64 cents per share, a move the bank (NYSE: WB) says will save $2 billion annually.

The bank plans to raise $7 billion via concurrent offerings of common stock and perpetual convertible preferred stock. Proceeds will be used for general corporate purposes.

"We are taking appropriate and prudent actions to further enhance our capital position in response to unprecedented economic conditions," Thompson said. "These actions will significantly increase our capital ratios, and enhance our ongoing financial flexibility."

Wachovia's stock has traded between $23.77 and $56.90 per share over the past year. It fell 10 percent in Monday morning trading to $25 per share, down from Friday's close of $27.81 per share.