Wachovia dumped its CEO Ken Thompson after a series of bad moves over the last few years culminated in a punishing year once the credit crisis began—and less than a month after it forced him out as chairman.
The Financial Times’s page-one lede says “The fallout from the credit crisis spread from Wall Street into the US retail banking sector on Monday as Wachovia removed its chief executive.”
Thompson’s ill-fated decisions included buying California mortgage lender Golden West right around the market peak in 2006 for $24 billion, getting heavily into commercial real estate and condos near their peaks, and a $7 billion acquisition it has had a hard time integrating with its other businesses. The Wall Street Journal on page one quotes the acting CEO saying the firing doesn’t signal trouble, but The New York Times on C1 and Bloomberg say the bank’s problems are likely to deepen.
That’s in part cynicism—or realism, to put it uncharitably—about Wall Street’s ways. An old trick by incoming regimes is to overstate losses due to their predecessors so they themselves have an easier time looking good later. Bloomberg quotes an analyst implicitly calling this:
“We figure since he’s leaving there’ll be a big loss provision for the second quarter,” David Hendler, senior analyst at CreditSights Inc., said in an interview. “They need to present a different picture on the company, which is, ‘We’re in the restructuring mode.’”
The WSJ in a Heard on the Street column says investor Michael Price is betting against the bank, saying “they need to fess up” about their credit losses.
The Journal goes high with good context its competitors (besides Bloomberg, partly) don’t get around to:
In recent weeks, Wachovia’s image was tarnished by revelations of a federal criminal investigation into alleged laundering of drug money between U.S. banks and Mexican and Colombian money-transfer companies. Separately, Wachovia paid $144 million to settle another case involving an alleged telemarketing scam conducted by firms that fraudulently obtained bank-account data from elderly Wachovia customers. Wachovia says it is cooperating with the money-laundering probe; it neither admitted nor denied guilt in the telemarketing case, but said the situation was “unacceptable, and we regret it happened.”
Bloomberg goes high with speculation that the bank will be taken over, something the NYT dismisses, but the WSJ, FT, and hometown Charlotte Observer say is possible.
The NYT says Thompson was “stunned” by the turn of events, which the Journal implies was precipitated by the board’s view he was in La-La Land: “What he has been telling the board hasn’t been realistic,” said a person close to the board (which in non journo-speak means “a board member”).
So how golden is Thompson’s parachute? Take your pick. The Journal and Bloomberg say about $8.7 million, while the Times says $34.5 million.
The Journal has the Quote of the Day in a separate C1 story, on what faces the acting CEO:
“Everybody’s looking to Lanty for the moment,” said a person who has worked with Mr. Smith. “He can’t know where all the bodies are buried.”
WaMu chief forced from chairmanship
Wachovia wasn’t the only financial-industry turmoil making news yesterday. Washington Mutual forced its CEO to give up the chairmanship of the company (something that ought to happen at every public firm), and financial stocks took a beating.
WaMu’s CEO Kerry Killinger had been chairman for seventeen years. No more. That’s what will happen when your share price is down eighty percent in a year, including a sizeable drop after you’ve had to get rescued by private equity on bad terms for your stockholders. Aggressive subprime mortgage lending has done in the bank.
The Journal on C3 quotes an analyst saying Killinger could be the next CEO to go:
Not everyone was convinced that Mr. Killinger’s job is secure, however. “His [Killinger’s] arc will probably be the same as Ken’s,” said Nancy Bush, an independent bank analyst at NAB Research in Aiken, S.C., referring to Mr. Thompson.
We wonder what took WaMu so long? The bank’s shareholders voted in April to remove him as chairman, Bloomberg notes. A decent board would have snapped to then.
Lehman’s first loss as public company
The Journal goes above the fold on A1 with a scoop that Lehman Brothers is considering raising billions of dollars in new capital. Its shares led a broad financial-sector decline, tumbling 8 percent. The paper says the bank is about to report its first loss as a public company.