Remember Wachovia? The huge bank that no one could ever contemplate collapsing that collapsed three months ago and that everyone has now forgotten? Well, Wachovia temporarily had a CEO named Bob Steel, who came from the Treasury Department and Goldman Sachs, bought $16 million of Wachovia stock with his own money, and then expressed confidence in Wachovia shortly before it collapsed.
And now the SEC is investigating Bob’s expressions of confidence. Because, of course, the confidence might have been a lie intended to deceive Wachovia investors.
In some cases, this sort of investigation is worthwhile: When a CEO or other senior officer made material, detailed public statements that were clearly inaccurate when there is evidence that he or she knew differently.
In other cases, however, this sort of investigation is ridiculous: When CEOs make vague optimistic noises that subsequently prove to have been misplaced.
Based on the details that have been leaked so far, the SEC’s investigation of Bob Steel is the latter sort:
WSJ: Among the issues under scrutiny is whether Mr. Steel, 57 years old, misled investors when he appeared on CNBC’s “Mad Money” program on Monday, Sept. 15. Financial stocks plunged across the board that day as Lehman Brothers filed for bankruptcy protection and Bank of America Corp. announced a deal to buy Merrill Lynch & Co.
Host Jim Cramer asked Mr. Steel whether his goal was to sell the bank. The CEO responded that Wachovia had a “great future as an independent company.” He added, “But we’re a public company, so we’re going to do what’s right for shareholders, I can promise you that. But we’re also focused on the very exciting prospects when we get things right going forward.”
Mr. Steel spoke of Wachovia’s efforts to raise money by cutting its dividend, cleaning up its balance sheet and reducing expenses. That day, shares of Wachovia fell by about 25%.
The next day, Sept. 16, Wachovia’s board met by telephone to discuss strategic options for the company, including raising money, selling core businesses and merging with another company, according to an SEC filing.
On Sept. 17, Mr. Steel called Morgan Stanley CEO John Mack to discuss a potential merger, according to people familiar with the matter.
By the week of Sept. 22, under pressure from regulators and with customers starting to withdraw deposits, Mr. Steel was immersed in merger negotiations with Citigroup Inc. and Wells Fargo & Co. executives, according to regulatory filings and people familiar with the matter.
Now, please explain how what Steel said on Cramer’s show is at odds with what happened? He said he thought the company had a great future as an independent company. He also said he’d do what was right for shareholders. Then, the next day, after the stock had fallen 25%, he discussed various strategic options with the board.
Please tell us the SEC has more to go on than this. We understand the Commission’s desire to eclipse the memory of the Chris Cox years with some aggressive investigations and prosecutions, but, so far, this one seems like a waste of time.