NEW YORK -- Wachovia Corp posted a surprising first-quarter loss on Monday as credit problems from mortgages and other debt soared, prompting the bank to cut its dividend and raise $7 billion in capital.
The fourth-largest U.S. bank is the latest major lender battered by the global credit crunch, which has caused loan losses and write-downs to mount.
Wachovia has also been hurt by Chief Executive Ken Thompson's ill-timed, $24.2 billion purchase of adjustable-rate mortgage lender Golden West Financial Corp in 2006, near the peak of the U.S. housing market.
Wachovia shares fell $3.01, or nearly 11 percent, to $24.80 in pre-market trading.
The first-quarter net loss was $350 million, or 20 cents per share, Wachovia said. That compared with a year-earlier profit of $2.3 billion, or $1.20 per share.
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Excluding special items, the loss was $270 million, or 14 cents per share. On that basis, analysts' average forecast was a profit of 47 cents per share, according to Reuters Estimates.
Revenue fell 5 percent to $7.9 billion, short of the average Wall Street forecast of $8.37 billion. Wachovia set aside $2.83 billion for credit losses, up 16-fold from a year earlier, and its investment banking unit suffered $1.56 billion of write-downs.
The Charlotte, North Carolina-based bank cut its quarterly dividend 41 percent, to 37.5 cents per share from 64 cents, preserving $2.1 billion of capital a year. Thompson in January said the dividend was safe.
Wachovia's capital raising includes public offerings of common and convertible preferred stock. It said it would not buy back stock for the rest of the year.
"They needed to do this," said Lee Delaporte, director of research at Dreman Value Management LLC in Jersey City, New Jersey, which invests $19 billion and owns Wachovia shares. "They're heavily exposed to some difficult areas."
PRECIPITOUS HOUSING DECLINE
Thompson said a "precipitous decline in housing market conditions and unprecedented changes in consumer behavior" forced the bank to bolster reserves. "We're taking prudent and appropriate actions in this challenging period to restore Wachovia to a more profitable path."
Wachovia ended March with a Tier-1 capital ratio of 7.5 percent, up from 7.4 percent at the end of 2007, despite selling $3.5 billion of preferred stock. The ratio measures its ability to cover losses. Regulators consider 6 percent sufficient.
The bank joins struggling lenders such as Citigroup Inc and Washington Mutual Inc in raising capital, and banks such as Citigroup and National City Corp in cutting dividends.
Wachovia said the $2.83 billion set aside for credit losses included $1.1 billion for "Pick-a-Pay" mortgages, a Golden West specialty that give homeowners a variety of payment options, including paying less than the interest and principal due.
Net charge-offs quintupled to $765 million, and nonperforming assets more than quadrupled to $8.37 billion.
Through Friday, the bank's shares were down 26.9 percent this year, compared with a 10.9 percent drop in the Philadelphia KBW Bank Index. The shares were down 53.2 percent since Wachovia announced the Golden West purchase in May 2006.
CREDIT LOSSES
Corporate and investment banking suffered a $77 million loss in the first quarter, compared with a profit of $550 million a year earlier.
Results in this unit included $1.56 billion of write-downs, largely for structured products, including collateralized debt obligations. The unit is a large packager of mortgages into securities and provider of loans to fund corporate buyouts.
The write-downs included $521 million tied to commercial mortgages, $339 million for subprime mortgages, $309 million for loans to fund corporate buyouts, $251 million for consumer mortgages, and $144 million for non-subprime debt.
Profit in consumer and business banking, Wachovia's largest unit, fell 17 percent to $1.2 billion, hurt by rising credit costs from housing and auto loans. Profit rose 22 percent in capital management to $381 million, and rose 10 percent to $92 million in wealth management, Wachovia said.
In October, the bank completed the acquisition of St. Louis-based AG Edwards Inc for $6.4 billion, creating the second-largest U.S. retail brokerage.
Net interest margin fell to 2.92 percent from 3.06 percent a year earlier but rose from the fourth-quarter's 2.88 percent. Wachovia ended March with $783.6 billion of assets.
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