Wachovia Posts Largest-Ever Loss for a Bank
By Zachary A. Goldfarb - Washington Post Staff Writer
Wednesday, October 22, 2008; 2:53 PM
Wachovia posted a $23.9 billion quarterly loss, as its portfolio of loans deteriorated and deposits fled the bank, laying bare the serious financial straits the company was in before Wells Fargo announced it would buy it this month.
The loss is the largest ever for a bank and, coming on top of $10 billion of losses earlier this year, wipes out nearly all the profits the firm has earned since the merger of two banks formed modern Wachovia in 2001.
The quarterly report revealed that Wachovia was experiencing a run in September as speculation about whether the bank would survive the financial crisis intensified. Depositors pulled out 5 percent of their money, or $13.4 billion, a massive amount for a bank.
San Francisco-based Wells Fargo is buying Charlotte-based Wachovia for $14 billion to form a bank that will have a combined 9,300 branches across the United States. Wells Fargo executives said Wachovia's losses were in line with what they expected and won't affect their plans.
"We believe that it was prudent for Wachovia to put these losses behind them," Howard Atkins, Wells Fargo's chief financial officer, said in a statement. "We're on track to complete the merger" by the end of the year.
Most of Wachovia's loss -- $18.8 billion -- stems from writing down the value of its reputation, brand and experience, an intangible measure known as "goodwill" that mainly plays a role in setting a company's value in mergers and acquisitions. The company lost $2.5 billion on its portfolio of loans and put away billions more to cover expected future losses.
Last year at the same time, the company posted a $1.7 billion profit. Wachovia shares have lost nearly 90 percent of their value in the past year.
Last month, the Federal Deposit Insurance Corp. engineered the acquisition of Wachovia by Citigroup and agreed to back part of the deal. But days later Wells Fargo swung in and made a richer bid that didn't involve government backing.
Citigroup vowed to press on with its purchase of Wachovia. All three banks braced for a big legal battle. But Citigroup later relented, allowing the Wells Fargo-Wachovia deal to proceed. Citigroup still has filed lawsuits pursuing billions in damages against the companies.