Yesterday Wachovia announced a new CEO to replace Ken Thompson: Robert Steele, previously a vice chairman at Goldman Sachs, and currently undersecretary of the Treasury until Wednesday.
Wachovia also shined a light on the darker side of its second quarter earnings yesterday, which will be announced officially on July 22. The firm is setting aside another $3.3 billion to its loan loss reserves and writing down $1.3 billion in bad loans as well as taking a $900 million charge related to a leasing scandal and a $600 million impairment charge related to the goodwill acquired with Golden West. As a result, the firm estimates second quarter earnings will be a negative $2.6 billion to $2.8 billion.
The losses outweighed the positive of new, and presumably capable, leadership. Wachovia shareholders have been crushed this year as the company’s stock price has fallen 60 percent year to date. The stock was down 5 percent today in afternoon trading.
The fact is that the new guy has his work cut out for him. “Some how he must wrest control of the company from the men who brought [it] to its knees with acquisitions like the Money Store and Golden West,” writes Dick Bove, an analyst with Ladenburg Thalman, in a report filed today. “He must learn how a commercial bank functions—and he must learn Wachovia.”
Bove speculates that Wachovia is a possible takeover target of Steele’s former employer: “Both his and Wachovia’s close relationship with Goldman Sachs will keep alive the belief (hope?) that Wachovia will be acquired by the large brokerage company.”