Credit Crunch, Mounting Losses Sees Ousting of Wachovia’s Chief Executive
Chief Executive Ken Thompson of Wachovia, the fourth-largest U.S. bank, was asked to step down in the wake of growing legal troubles and loan losses tied to the purchase of a big mortgage lender just before the nation's housing boom went bust.
Lanty Smith, who replaced Thompson as chairman last month, was named interim chief executive, Wachovia announced Monday. Ben Jenkins, the vice chairman and head of Wachovia's retail and business bank, was named interim chief operating officer.
Wachovia said it asked Thompson to quit a few days ago, and made the formal decision to replace him Sunday.
"There has been a steady flow of negative news, all of which may have reduced confidence in the company's controls," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners. "Ken's credibility with investors may have fallen to a point where the board decided it would be better off with a new face."
Speaking on a conference call with reporters, Smith said the board's decision follows a series of disappointments rather than any one overriding event, but that it is "absolutely not" true the bank faces a crisis.
"We're very proud of where Wachovia has been," he said. "We're less proud of where it is today."
Wachovia has tripled in size since Thompson engineered the 2001 merger of First Union with Wachovia.
For many years, he held a reputation for smoothly integrating acquisitions, such as the $13.7 billion purchase in 2004 of another southeast U.S. bank, SouthTrust.
But Thompson has admitted to poor timing for his $24.2 billion purchase in October 2006 of Golden West Financial, an Oakland, California mortgage specialist and thrift.
Losses from "option" adjustable-rate mortgages that let borrowers pay less than the interest due helped cause nonperforming assets to more than quadruple from a year earlier to $8.37 billion.
Wachovia has also suffered from its investment bank's exposure to structured products and commercial real estate.
Mounting loan losses pushed Wachovia in April to cut its dividend 41 percent, and raise $8.05 billion in capital. Smith said the bank doesn't believe it needs more capital, but that "one never says never."
Published on June 2, 2008
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