Sign of the L at Wachovia
The big W from Charlotte posted the big L today reporting a whopping record loss of $8.9 Billion, more than the bank ever earned in a year. Most of the problems and losses at Wachovia were attributed to the purchase of Golden West Financial two years ago just as home prices were peaking. Golden West more or less invented the option ARM which I have characterized as potentially the most insidious mortgage a less financially astute borrower could select. An option ARM loan allows the borrower to skip part of the payment and add it to the principal. Making matters worse is that 70% of their option ARM loan portfolio is centered in 22 housing markets in California and Florida. Read more at Bloomberg.com.
What's next for Wachovia. New CEO, Robert Steel, formerly of Goldman Sachs and the US Treasury Department has been brought in to straighten out the mess that Ken Thompson left. It's just my opinion but I think Jamie Dimon from JP Morgan Chase might step in and pick up a sweet deal. It would certainly give JP Morgan Chase a major banking franchise in the growing Southeast. The price would be cheap and they probably will get some government support if they make a purchase, after all, right now everyone is waiting in the government bread line.
Photo courtesy of Flickr by troubled-diva.