Sept. 29 (Bloomberg) — Wachovia Corp., under increasing pressure after shares of the sixth-biggest U.S. bank by assets plunged 47 percent last week, may be forced to seek a buyer or merger partner as losses from mortgage defaults mount.
Three days after Chief Executive Officer Robert Steel told employees Wachovia was “strong and performing well,” the Wall Street Journal reported today that the Charlotte, North Carolina- based bank was in advanced takeover talks with Wells Fargo & Co. Citigroup Inc. also may make a bid, the paper reported. Wachovia fell 52 percent to $4.88 in German trading.
Wachovia’s plight stems from the $24 billion acquisition of Golden West Financial Corp., a California lender that specialized in payment-option adjustable-rate mortgages. Former CEO Ken Thompson told shareholders in May 2007 the loans would help propel earnings to new highs. Instead, Wachovia now expects losses on 12 percent, or $14 billion, of the $122 billion option- ARM portfolio. Analysts at Fitch Ratings predict default rates on such loans packaged as securities may reach 45 percent.
“I don’t see why Wells Fargo would take on $122 billion of option ARMs to work out after they’ve eschewed doing those kinds of loans over the past five years,” said Nancy Bush, an independent bank analyst in Aiken, South Carolina. “Citigroup isn’t in a better position to bid than Wells. They’ve got their own problems.”
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