Wachovia Corp. reported a $23.9-billion third-quarter loss Wednesday, the largest loss at any bank since the financial crisis began, reflecting the company's terrible timing in acquiring California-based mortgage lender Golden West Financial Corp. two years ago.
Charlotte, N.C.-based Wachovia, which is being taken over by Wells Fargo & Co. after nearly collapsing last month, reported a host of problems.
By far the biggest contributor to the loss was an $18.7-billion charge to account for the eroded value of the company's acquired businesses, mainly Golden West, the $24-billion purchase of which Wachovia completed in October 2006 as housing prices peaked.
Oakland-based Golden West, which owned World Savings, was a pioneer in pay-option adjustable-rate mortgages, known as option ARMs, which allowed borrowers each month to opt for a payment so low that the loan balance went up instead of down.
The company's loan portfolio appeared healthy when Wachovia inherited it, but began to spill red ink as the housing downturn intensified.
Gerard Cassidy, managing director for bank equity at investment bank RBC Capital Markets, described the Golden West acquisition as a horrific debacle -- "without a doubt, the worst bank acquisition I have seen in 30 years."
Wachovia's results were far worse than Wall Street expected. It was the largest loss at any bank since the financial crisis began and possibly the largest quarterly loss ever, Cassidy said.
In other signs of trouble, bad loans on the company's books jumped 21% during the quarter, deposits from business customers plunged and the bank recorded $2.5 billion in losses related to financial market disruptions such as the failures of Lehman Bros. Holdings Inc., Freddie Mac and Fannie Mae.
Wachovia added $6.6 billion to provisions for credit losses because of the weak economy and battered housing markets in California and Florida. Losses on car and construction loans jumped sharply.
"The credit is worsening at a pace I had never expected," Keefe, Bruyette & Woods analyst Jefferson Harralson said.
The bank said it tightened lending standards on car loans and slashed the volume of auto loans originated by 30% from the second quarter.
Other lenders have taken similar steps. The reduction in auto lending could partly be the result of fewer people looking to buy a car, but it also sheds light on why consumers are complaining of difficulty financing car purchases.
