Wachovia "seems to feel it that it can survive": analyst
Wachovia Bank, the N.Car.-based company that's Philadelphia's dominant bank, has staggered under foreclosed-mortgage losses, auction-bond paybacks and management resignations. Managers tell bond analyst David Hendler they can right the ship.
After meeting with departing Wachovia CFO Tom Wurtz and chief risk officer Don Truslow, and with corporate banking chief Dave Pitelka (who's staying), former Salomon Bros. bond chief David Hendler, head of CreditSights Inc., reports the bank "seems to feel it can survive as an independent franchise" and is prepared to manage its way through higher losses over the next 18 months.
Wachovia officials admit overpaying for Golden West, the West Coast bank whose risky loan clients are defaulting. They've sold mortgage-backed securities (at cut rates) and stopped making option adjustable-rate mortgages, and boosted loan-loss provisions.
"We agree that the company should be able to survive through the credit cycle," Hendler wrote in a report to cleints. "However, our view is that Wachovia's near-term earning power is likely to remain pressured in light of its problematic (loss) exposures. Therefore, we feel that a strategic merger would be a more favorable outcome for stock investors," after the stock fell more than 60% year-to-date. He predicts new CEO Robert Steel will "work through some of the biggest problems, in hopes of getting a better price for the franchise once there is stabilization and rebound."