Wachovia Corp has posted a $23.9 billion third-quarter loss, a record for any US lender in the global credit crisis, underscoring the challenges Wells Fargo & Co will face after it acquires the big lender.
The loss totalled $11.18 per share, and stemmed mostly from an $18.7 billion writedown of goodwill because asset values declined, as well as a big increase in reserves for soured loans. Wachovia has lost $33 billion in the last two quarters.
Excluding items, Wachovia said the loss was $4.76 billion, or $2.23 per share. Analysts on average expected a loss of 27 cents per share, according to Reuters Estimates.
Wachovia announced results after Wells Fargo this month agreed to pay $15.1 billion for the Charlotte, North Carolina-based lender, without any government backing to cover potential loan losses.
The value fell yesterday to about $14 billion because Wells Fargo's share price has declined.
San Francisco-based Wells Fargo won a bidding war against Citigroup Inc, which offered $2.16 billion for part of Wachovia, and with government backing to limit loan losses. Wells Fargo agreed to absorb $74 billion of losses.
Wachovia arranged the Wells Fargo merger less than three weeks after chief executive Robert Steel said the company was fine.
"The market environment changed more precipitously than anyone had expected," Steel said today in a statement. Citigroup is now suing Wells Fargo for $60 billion for damages related to the breakup of the merger agreement.
Wells Fargo did not immediately return a call seeking comment on Wachovia's results.
Much of Wachovia's troubles stem from a fast-deteriorating $118.7 billion portfolio of "Pick-a-Pay" option adjustable-rate mortgages it largely took on when it bought California lender Golden West Financial Corp for $24.2 billion in 2006.
Wachovia said it now expects cumulative losses on that 438,000-loan portfolio of $26.1 billion, or 22 per cent, up from the 12 per cent it had forecast in July.
Overall, the bank set aside $6.63 billion for credit losses, while net charge-offs totalled $1.87 billion. Nearly three-fourths of the $4.76 billion addition to reserves was related to the Pick-a-Pay portfolio.
About two-thirds of the goodwill writedown related to retail and small-business operations, which holds the Pick-a-Pay portfolio. Most of the rest related to commercial banking operations.