Wachovia reported more than $1 billion loss in October alone, as loan-related losses hit the bottom line of the nationwide bank. That October loss comes on the top of $1.3 billion loss taken by Wachovia in the 3rd quarter. These losses are in line with most analyst estimates that the 4th quarter is going to be far worse in terms of losses than the brutal 3rd quarter was for those companies with exposure to the mortgage markets.
Due to the October market deterioration, Wachovia’s asset-backed collateralized debt obligations, or CDOs, experienced further declines in value in October 2007 by an amount it currently estimates to be approximately $1.1 billion pre-tax, the filing said.
In the third quarter, market losses totaling $1.3 billion pre-tax included $347 million of subprime-related valuation losses on CDOs.
As of Oct. 31, Wachovia said it had remaining exposure of $676 million to asset-backed CDOs, compared with $1.8 billion the previous month. Wachovia has exposure to subprime residential mortgage-backed securities of $2.1 billion, according to the filing.
While analysts admit that the bank’s exposure to future losses is less than others in these types of investments the big concern is their purchase of Golden West/World Savings last year. World Savings is a prolific option ARM lender with heavy concentration in California. These loans could become massively problematic in the future as they begin to reset. It is this exposure for Wachovia that has many people (rightfully) worried.
“Nevertheless, we consider this to be negative news,” Deutsche Bank said. “Per the investment bank, management indicated that it would stay the course but we wonder if additional changes could be needed. Second, per Golden West, it now becomes even more obvious that Wachovia purchased the thrift at the wrong time of the cycle.”
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