Wachovia 4Q earnings plunge 98%

Jan 22, 2008

Wachovia Corp. reports fourth-quarter earnings of $51 million, or 3 cents per diluted share, down 98 percent from a year earlier, when the bank reported earnings of $2.3 billion, or $1.20 per diluted share.

The bank's quarterly earnings were hit by $1.7 billion in write-downs and $1.5 billion in provision expenses, or money set aside to cover bad loans. The provision expense, up from $206 million a year ago, was largely tied to loans at risk due to deterioration in the housing market, the bank says.

Excluding merger-related expenses, earnings were $160 million or 8 cents per share in the fourth quarter. The mean estimate among analysts polled by Thomson Financial was 33 cents per share.

"The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth-quarter results substantially," says Ken Thompson, chief executive. "We took active and prudent steps in the second half of the year to deal with the market disruption and credit deterioration, and we believe this allows us to move forward from a position of strength despite the uncertain economic environment."

Net interest income in the latest quarter remained relatively flat at $4.67 billion, but fee and other income declined 37 percent to $2.5 billion, in part due to the $1.7 billion in write-downs of complex securities that have lost value because of the credit crunch.

The bulk of the write-downs -- $1 billion worth -- were collateralized debt obligations tied to subprime mortgages. The remainder were largely commercial and consumer mortgage-backed securities.

Wachovia's corporate and investment bank -- the unit that handles the underwriting of such securities -- incurred a loss of $596 million in the latest quarter. In the same period in 2006, it earned $670 million.

Charlotte-based Wachovia (NYSE:WB) says its provision for loan losses reflect expected higher losses in consumer real estate, a portion of its commercial real estate portfolio tied to the housing market, and troubles in its auto-loan portfolio. Total nonperforming assets were $5.2 billion, or 1.08 percent of loans, mostly due to the weakened housing industry.

Full-year 2007 net income totaled $6.31 billion, or $3.26 per diluted share, down 19 percent from $7.79 billion, or $4.63 per diluted share in 2006.

Excluding after-tax net merger-related expenses of 8 cents in 2007 and 7 cents in 2006, earnings in 2007 were $6.47 billion, or $3.34 per share, down from $7.91 billion, or $4.70 per share, in 2006.

Net interest income grew to $18.13 billion from $15.25 billion in 2006. Fee and other income fell to $13.3 billion from $14.67 billion.

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