Conference Call Notes (Note: material appearing in quotes is often paraphrased, and is not verbatim)
09:55: Music playing, awaiting call…
10:02: Still waiting for call…
10:04: Call begins… usual introductory remarks and disclaimers about forward-looking statements.
10:05: Bob Steel: Goes over the basic figures… excluding special items, loss was $2.7 billion. “Core franchises are strong, and in some cases getting stronger. Clearly a disappointing result, and we take reponsibility.” Will discuss decisive steps to preserve, protect, rebuild capital. Will be able to free up $5 billion in capital. “Earnings engine remains intact.”
10:09: CFO Tom Wurtz takes over: Goodwill impairment is non-cash and capital-neutral. Absten $975 million SILO charger, Net interest margin was up.
10:11: There’s a positive story on fundamentals. Special items pushed down results. Results are “not reflective.” 5 notable items aggregate to $9 billion. SILO charge, market-disruption, legal reserve build, discretionary sale of securities, and Goodwill charge-off.
10:13: $6.1 billion Impairment resulted from disparity between market cap and fair value of equity.
10:15: More colour on how segment performance remains strong excluding special items. (All good and well, but beside the point).
10:17: Fees up 2%, card purchase volume up 10%, mortgage banking fees up.
10:19: Customer satisfaction is “strong” and Wealth Management division had record quarter. Earnings up 7% year-over-year.
10:21: A.G. Edwards integration 40% complete, going well. Positive net inflows. Client assets only down 7%, despite S&P being down 16%.
10:25: Chief Risk Officer takes over to talk about credit environment: Says there was “meaningful deterioration. Continue to confront unprecedented declines in housing markets.” Outside of housing, credit costs have been increasing, but at a “manageable pace.” Outlook is for “continued deterioration.”
10:29: $8.4 billion in non-performing loans, most of which from Pick-a-pay porfolio. “Agressive in selling foreclosed properties.” Foreclosed properties are building faster than WB can currently sell them.
10:30: “Outlook for housing and the economy has continued to worsen. In 2Q08 the portfolio performed below 1Q08 expectations.”
10:36: Wachovia’s current assumption for peak-to-trough decline in portfolio-weighted national housing price is 20.8% (Low end of current consensus outlook).
10:38: WB says they have experienced 9% decline in housing portfolio so far, models suggest 14% to go. Not halfway through yet.
10:40: Charge-offs will continue and peak in 2009. “We are taking very agressive steps to manage exposure in this portfolio
10:41: Wachovia is currently modelling and assuming that they will take a $6.6 billion charge-off in their pick-a-pay portfolio in 2009.
10:44: Net exposure to subprime of $1.9 billion including $4.0 billion of hedges; $2.0 billion hedged with monoline guarantors.
10:46: Net exposure of $756 million to commercial mortgage-backed securities.
10:47: “Will consider sale of non-core assets.”
10:49: Net exposure of $3.8 billion to leveraged finance, including $574million of unfunded commitments; $600 million of exposure reflects new business.
10:51: Expense cuts will save $1.5 billion of capital in 2008 and 2009.
10:52: “Balance sheet discipline/risk-reduction strategies expected to result in $20 billion reduction in loans/securities by YE 2008.”
10:52: “No question that we’re facing challenges. Will be more challenges ahead. Credit costs will rise. We understand our issues and challenges. Will be taking further action. Committed to strong balance sheet.”
10:52: Q&A begins… KWB analyst asks about call on capital, $5 billion potential put by Prudential… Answer: Partnership with Prudential going well. “Would be surprised if they exercised put. Can’t speak for Prudential, but given nature of relationship, profitability, and value going ahead, would be surprised if they exercised.”
10:54: Deutsche Bank analyst asks for Steel’s view on raising capital… Answer: “We reduced dividend, and have outlined plans that will improve capital ratio. We have other levers.” Common stock issuance “not in the plan.”
10:58: Deutsche analyst asks how much more notable items might we see in next couple of quarters… Answer: Impossible to estimate. We’ve taken actions to reduce exposure. Made substantive additions to reserves.
11:00: Meredith Whitney asks what projects will be axed in Capex reduction… Answer: Reducing rate of expansion in West. Lots of little things.
11:11: NAB analyst asks about sale of non-core assets, what are they? What’s time frame?… Answer: “Can give you some idea, but not as much as you’d like. Will look at businesses that aren’t central to our mission.”
11:20: Credit Suisse analyst asks for colour on potential for impairment… Answer: “We’re not anticipating anything right now.”
11:22: Could housing turn around in a quarter or so, how are you sure that 12% cumulative loss in housing portfolio is accurate?… Answer: We have a realistic view, based on what economists are telling us. “Tried to take a balanced perspective.”
11:24: Morgan Stanley analyst asks how large WB expects its mortgage book to be in the next few years… Answer: Won’t be much growth. Want to refinance pick-a-pay customers into government products.
11:27: RBC analyst asks for colour on NPAs in commercial segment… Answer: Vast majority of Commercial real estate NPAs are from builder/residential book. Not an underlying pattern or theme to rest of NPAs in C&I.
11:36: Call ends…