Image: Wachovia
Chuck Burton  /  AP
Wachovia Corp. as hurt by $1.3 billion in losses and write-downs related to turmoil in the credit markets.
updated 10/19/2007 12:12:57 PM ET 2007-10-19T16:12:57

Wachovia Corp., the nation’s fourth largest bank, said Friday its profit fell 10 percent in the third quarter, hurt by $1.3 billion in losses and write-downs related to turmoil in the credit markets.

Chief executive Ken Thompson said the Charlotte-based company was “deeply disappointed” in the results, particularly in the company’s corporate and investment bank.

Other executives said the bank would eliminate several hundred positions by year-end but declined to be more specific. The banking company employs about 110,000 people overall.

“Given the environment we are in now, we plan to remain very disciplined across the organization,” Chief Financial Officer Tom Wurtz said in an interview. Wurtz said a number of growth initiatives that the bank would have pursued will now be put on the back burner, declining to more specific.

The bank’s shares fell nearly 2 percent in midday trading.

Wachovia said net income fell to $1.69 billion, or 89 cents per share, in the July-September period compared with $1.88 billion, or $1.17 per share in the year-ago period. Revenue grew 4 percent to $7.35 billion from $7.04 billion in the third quarter of 2006.

After-tax expenses related to the bank’s acquisition of Golden West Financial Corp. amounted to 1 cent per common share in the third quarter of 2007.

Earnings in the third quarter also include a $249 million gain from correcting results from earlier this year.

Wall Street expected earnings of $1.03 per share on $8.02 billion of revenue, according to analysts polled by Thomson Financial. The earnings estimates typically exclude one-time items.

Its shares fell 92 cents, or 1.9 percent, to $47.22 in midday trading Friday.

Thompson said the summer’s turmoil in fixed-income markets “clearly had a disappointing impact on the results of market-oriented businesses, but the strength in our core banking and brokerage businesses continued to serve us very well.”

He added, “we’re taking the appropriate steps to ensure that as markets remain unsettled, we focus intently on actively managing our exposures and controlling costs.”

But he told analysts the “managing” he plans to do will not include “substantial shifts in our business model,” alluding to Thursday’s news of the decision by Bank of America Corp., its crosstown rival, to reassess its investment bank business.

Instead, he said the Wachovia has “taken and continue to take decisive steps on expenses through actions on head count, incentives and discretionary spending within our corporate and investment bank.”

Bank of America Chief Executive Ken Lewis on Thursday said, “there will be some scaling back,” after investment banking results helped plunge his company’s third-quarter profits by 32 percent.

In the quarter, Wachovia recorded a provision for credit losses of $408 million, up from $108 million, reflecting modest deterioration in credit quality, a more uncertain credit environment and loan growth. Net charge-offs were $206 million, or 19 percent of average net loans.

Corporate and investment banking operations saw earnings sink 80 percent, as revenue tumbled 51 percent to $819 million. The business unit had earnings of $105 million, down from $428 million, driven by the $1.3 billion effect of the market disruption.

Wachovia’s general bank saw earnings jump 33 percent, with revenue climbing 30 percent to $4.5 billion. Results were driven by increased loans and deposits and reflected the bank’s October 2006 acquisition of Golden West Financial Corp., which expanded Wachovia’s mortgage business even as the industry had slowed and gave the company a foothold in California, a state where it had just a handful of branch offices.

Investors expressed concern then, and continue to do so, about the bank’s $24 billion purchase last year of one of the country’s largest mortgage lenders.

But bank executives say the doubters are wrong and insist the takeover is working out just fine.

“We are faring in much better shape than other lenders in this market,” said Don Truslow, Wachovia’s chief risk officer.

Net interest margin, a measure of the difference between Wachovia’s borrowing costs and lending rates, dropped to 2.92 percent from 3.03 percent.

Third quarter results included the full quarter impact of Golden West. Results do not include the impact of the bank’s acquisition of A.G. Edwards Inc., a retail brokerage firm headquartered in St. Louis, which closed on Oct. 1 of this year.

For the first nine months of the year, net income was $6.33 billion, or $3.30 a share, up from $5.49 billion, or $3.43 a share, in 2006.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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