Wachovia’s Unfair Warning

Apparently the management of Wachovia Bank never realized that the purpose of earnings warnings season is to warn. Instead the bank reported losses 80% higher than they announced last month, from $393 million to $708 million. The write down of $315 million was reportedly due to an insurance policy, but the bank faces a sundry of exposures to possible future losses and write downs.

The write-down is the latest blow for the Charlotte, North Carolina-based bank, which has struggled with mounting mortgage losses, and in the last two weeks faced up to $1.14 billion of unrelated costs for legal and regulatory matters.

In Q1 2008 Wachovia was hit with $2 billion in write downs while raising $8 billion in new capital.

In the latest quarter, Wachovia incurred writedowns of $2 billion related to the ongoing credit crisis. The bank also set aside $2.8 billion in the latest quarter to cover problem loans.

The company also recently cut its dividend to 37.5 cents per share from 64 cents per share while raising $8 billion in new common and preferred stock, which diluted the value of existing shareholders’ stock.

For its fiscal 2007 third quarter (Dec07-March08) Wachovia was $2 billion by $8 billion, that is $2 billion in write downs and $8 billion in cash raised ($2B/$8B). They also set aside $2.8 billion. Since the onset of the credit crunch that comes to $6.8 billion in write downs and $10 billion raised cash.

Wachovia has recorded $7 billion in writedowns and credit losses over the past three quarters, while raising $10.5 billion in additional capital.

So losses accelerate as the write downs get deeper.

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