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Wachovia Reports Record $24 Billion Loss, Brokerage Results Weak, But With Bright Spots

Wachovia financial advisors don’t have a great story to tell their reportedly fed-up clients today.

Wachovia financial advisors don’t have a great story to tell their reportedly fed-up clients today. The firm announced a quarterly loss of $24 billion, setting a new record not just for the company, but for any U.S. lender since the credit crisis began. The massive loss was due primarily to declining values in its retail and small business banking divisions. But the retail brokerage and wealth management units didn’t fare so well either.

The $24 billion quarterly loss represents $11.18 per share, compared to earnings of $1.62 billion in the year-ago quarter, or 85 cents per share. That quarterly loss includes $235 million in sub-prime mortgage-related write-downs and $347 million in commercial mortgage-related write-downs. But a run on deposits at the bank helped too: “Low-cost core” deposits from business customers fell 8 percent in the quarter as these customers withdrew nearly a quarter of their deposits.

Some speculated that the sorry state of Wachovia’s earnings and balance sheet might explain why Citigroup bowed out without sweetening its deal and let Wells Fargo take the firm over. Citigroup first agreed to buy the firm with FDIC backing, but then Wells Fargo stepped in with a higher bid, which resulted in a brief but intense battle for the firm between the two banks.

The capital management group—which includes asset management and Wachovia Securities, the firm’s retail brokerage arm—reported a $499 million loss for the quarter versus year-ago earnings for the quarter of $294 million. Fees were down $1 billion for the quarter versus the previous quarter, when you include $930 million of “market-disruption-related losses,” Wachovia reported. Almost half of those market-disruption-related losses are due to the ARS-market freeze: Some $80 million represent ARS-related losses, and another $432 million represents ARS-related settlements and other expenses.

By other measures, the capital management division’s results were mixed: Series 7 rep headcount in the division was flat year-over-year at 14,635, and Wachovia claims that growth in high-producing financial advisors has been offset by attrition among low-producing advisors. Client assets for the unit grew 24 percent versus the previous year to around $1 trillion, while revenue per advisor slipped 24 percent to $522,000. Over at A.G. Edwards, assets are down 16 percent since the acquisition of the firm, Wachovia said, but that comes amid a 24 percent drop in the S&P 500 over the same period.

Wachovia financial advisors and their legacy A.G. Edwards colleagues have yet to hear whether—or when—they will receive a retention package as incentive for them to stay on after their firm merges with Wells Fargo, a deal that was finalized on Oct 10 when Citigroup decided to bow out.

Wachovia’s $24 billion quarterly loss includes a total of $18.8 billion of goodwill write-downs—$12.3 billion of that related to the struggling retail and small business banking divisions—and set aside $4.8 billion in additional credit reserves, among other items. Excluding the goodwill charge and merger-related costs, the firm’s lost a net $4.76 billion for the third quarter, or $2.23 per share.

“In these unprecedented times, my colleagues have demonstrated that Wachovia always puts the interests of our customers and clients first,” said Robert Steel, Wachovia CEO and president. Wells Fargo CFO, Howard Watkins, who no doubt had the tax benefits of the losses on his mind, called Wachovia’s write-downs and reserve build “prudent.”

Shares of Wachovia (NYSE:WB) were down 6 percent in late afternoon trading; Wells Fargo shares (NYSE: WSF) were down 7 percent.

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