Wachovia negotiating for $7 billion infusion: report
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wachovia April 14th, 2008
SAN FRANCISCO (MarketWatch) — Wachovia Corp could announce as soon as Monday that it is getting a capital infusion of as much as $ billion dollars from outside investors, according to a media report. terms of the deal were being hammered out Sunday night, but it appeared likely that Wachovia (WB:27.81, -0.06, -0.2%) , the fifth-largest U.S. bank in stock-market value would receive $6 billion to $7 billion, The Wall Street Journal reported in its online edition, citing unnamed people familiar with the matter. See Wall Street Journal story (subscription required)
In return, the investor group would get shares priced roughly $23 to $24 apiece, a 15% discount to Wachovia’s share price Friday, the Journal said. Unlike recent infusions other companies have received, no government investment funds, known as sovereign-wealth funds, are believed to be among the investors pumping capital into Wachovia, the Journal reported Wachovia’s need for capital comes only two months after the Charlotte, N.C., bank raised $3.5 billion through a preferred-stock sale, according to the report. At the time, G. Kennedy Thompson, Wachovia’s chairman and chief executive, told shareholders that those funds “provide greater certainty that we are well positioned in 2008″ and Wachovia officials repeatedly denied that dividend payments would be reduced in order to conserve cash, the Journal said. Officials at Wachovia didn’t respond to requests for comment, the Journal reported. Wachovia said in a news release Sunday night that it plans to announce quarterly results Monday morning, although it previously had said it would report Friday, the Journal said. Wachovia’s deal is similar in structure to the $7 billion infusion announced by Washington Mutual Inc. (WM:10.95, -0.47, -4.1%) last week, the Journal said. Private-equity firm TPG will receive warrants to purchase more than 57.1 million WaMu shares as part of a plan to recapitalize the Seattle-based thrift.
The trouble at Wachovia stems largely from its $25 billion purchase of Golden West nearly two years ago, according to the Journal. Golden West’s loans were concentrated in California, one of the hardest-hit housing markets in the U.S., and the vast majority loans were option ARM loans, which let customers choose how much to pay each month, with unpaid interest added onto the mortgage and increasing the loan’s balance, according to the report. In last year’s fourth quarter, Wachovia’s net income plunged 98% to its lowest level in nearly a decade, the Journal reported, noting that among signs of the Golden West strain were that nonperforming assets in Wachovia’s option-ARM portfolio stood at $2.77 billion, more than triple the $675 million a year earlier.
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