Wachovia is being hurt by its $25 billion acquisition of California's Golden West Financial Corp. in 2006, a California lender known for novelty mortgages that are defaulting at a higher rate than more traditional mortgages.
Shares of Charlotte, N.C.-based Wachovia dropped at the market's opening Tuesday but later rose. Wachovia stock gained $3.61 to close at $16.79, a 28 percent increase.
Wachovia has nine securities brokerage offices in the Pittsburgh region, including four Downtown. The layoff plans announced Tuesday should have "minimal impact" on those locations, said spokeswoman Barbara Nate. Wachovia has no bank branches in Western Pennsylvania, but it was a major lender to bankrupt LeNature's Inc. in Latrobe and is expected to be a target of lawsuits in that case.
Wachovia's second-quarter earnings blew through the basement of analyst expectations. Analysts guessed that the bank would post a loss of 78 cents per share. Instead, Wachovia lost $4.20 per share. Even backing out write-downs and other one-time charges, the bank lost $1.27 per share.
In the second quarter of 2007, Wachovia earned $2.3 billion, or $1.22 per share.
The bank cut its dividend from 37.5 cents per share to 5 cents, which will save about $700 million in cash per quarter.
Golden West sold a "Pick a Payment" loan option, which lets customers pay less-than-full interest payments on new loans. Such exotic loans, typically given to first-time homebuyers with shaky credit, carry a higher default rate than standard mortgages and have been the flashpoint of the mortgage crisis, which has spread to the credit industry.
Wachovia has hired the Goldman Sachs Group Inc. to evaluate its loan portfolio.
"These bottom-line results are disappointing and unacceptable," Wachovia Chairman Lanty Smith said in a statement. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility."
Wachovia tapped former Treasury under secretary Robert Steel as its chief executive earlier this month to help lead the bank through the ongoing mortgage crisis.
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