Wachovia posts unexpected loss, heightens recession fears

Source: Exec Digital USA

Date :4/14/2008 4:03:29 AM

Major U.S. bank Wachovia Corp. has posted an unexpected first quarter shortfall of $393 million, while pledging to replenish capital with a $7 billion share sale.

The first quarter loss compares unfavourably with the equivalent period twelve months ago when the bank posted earnings of $2.3 billion – an increase of approximately 120p per share.

In a statement, chief executive officer Kennedy Thompson said that he was “deeply disappointed” following the first quarterly loss since 2001, which saw the company’s market value drop 50 percent since the $24.6 billion takeover of Golden West Financial Corp. in 2006.

In conjunction with this news, Wachovia also reduced its dividend to preserve $2 billion of funds – a decision that Mr. Thompson describes as “the most painful.”

“The most painful decision was to reduce the dividend because it adversely affects our shareholders,” he said. “But we believe the long-term benefit to shareholder value outweighs the disadvantage of the dividend reduction as we fortify our balance sheet against continued instability in the housing and capital markets.”

Deepened fears

This news heightens fears of economic recession, despite continued injection by the Federal Reserve, as many major players have started posting losses to revenue and sharp declines in share value.

Nevertheless, Wachovia Corp. has taken steps to limit the damage caused and restructure the company’s finances by negotiating a deal with private investors for a capital infusion worth up to $7 billion. This deal, however, does not include taxpayer-aided government investment funds, so purely takes the shape of a privately-funded financial restructuring.

As trading commenced this morning, shares in Wachovia fell twelve percent to $24.58 per share.

April 14, 2008