Wachovia Expects $1.1 Billion Write-Down
By MIKE BARRISNovember 9, 2007 8:56 a.m.
Wachovia Corp., which signaled increasing credit troubles ahead in its third-quarter results last month, said that it expects to take an additional $1.1 billion pretax hit as conditions continue to deteriorate in the subprime-mortgage market.
The bank will write down the value of its collateralized debt obligations by about $1.11 a share for October. It also said it will record a loan-loss provision in the fourth quarter of between $500 million to $600 million, citing the housing-market downturn.
After the third-quarter report, "certain financial markets experienced further deterioration, particularly the markets for subprime residential mortgage-backed securities and for collateralized debt obligations," Wachovia said.
In premarket trading, Wachovia shares were at $39, versus Thursday's close of $40.30.
Wachovia said its exposure to subprime residential mortgage-backed securities was $2.1 billion as of Oct. 31. The bank's exposure to asset-backed collateralized debt obligations was $676 million as of Oct. 31, compared with $1.8 billion as of Sept. 30.
The bank also said a $115 million expense connected to Visa's planned initial public offering and a legal settlement with American Express Co. will lower third-quarter reported net income by $72 million, or 4 cents a share.
Last month, the fifth-largest U.S. bank reported a 10% drop in third quarter net income as loan-loss provisions quadrupled and it took $1.3 billion in losses and write-downs. At the time, Wachovia Chairman and Chief Executive G. Kennedy Thompson said "trends in mortgage credit are deteriorating faster than we would have expected."
The earnings were the latest to show how the damage caused by subprime loans has spread throughout the industry, bruising even banks that largely stayed on the sidelines during the subprime-lending boom.