A spokeswoman for Wachovia, Christine Phillips-Brown, said: "We are aggressively addressing our challenges and are working to strategically strengthen and manage capital and liquidity in this challenging environment." The bank, she added, expects "that the Treasury plan under consideration by Congress is a constructive and important step toward restoring confidence and stability in our financial system."
Wachovia has a $122 billion portfolio of Pick-A-Payment mortgages loaded with adjustable interest-rate loans (ARMs) that allow borrowers to skip part of their monthly payments, much of which it inherited from its ill-timed acquisition of Golden West, the big California lender, at the end of the housing boom in 2006.
Of Wachovia's $122 billion in Pick-A-Pays, 5.78% are considered "nonperforming," or more than 90 days past due, as of this year's second quarter. Another 5.2% of the portfolio is delinquent by less than 90 days. As of last year's second quarter, only 1.03% of the Pick-A-Pay portfolio was classified as nonperforming.
Wachovia's $44 billion in traditional mortgages, by contrast, show a nonperforming rate of 0.98%, up from 0.35% in last year's second quarter.
Of the entire Pick-A-Pay portfolio, 58% of the outstanding balances are tied to properties in California, and another 10% are tied to homes in Florida - two states hardest hit by declines in home values. In comparison, of WaMu's ARMs 62% were also in California and Florida.
"Wachovia has a real problem," said Len Blum of the investment bank Westwood Capital. "Option ARMs are probably the worst mortgage products out there and Wachovia has a lot more of them than it has in tangible equity."
The bank's shares, which are down nearly 80 percent in the last year, plunged 27 percent Friday, to $10, as investors wondered about its health after the government's seizure of WaMu on Thursday.
In after-hours trading, Wachovia dropped another 15 percent, to $8.50, after The New York Times reported that New York-based Citigroup Inc. was in early talks to buy the bank. The Wall Street Journal said bids may come from San Francisco-based Wells Fargo & Co. and Spain's Banco Santander SA.
DID YA KNOW?
Did you know that Wachovia will pay tens of millions of dollars for having "engaged in unsafe or unsound practices" in connection with telemarketing fraudsters, the U.S. Treasury announced back in April, 2008? Without admitting or denying wrongdoing, the bank agreed to pay as much as $125 million in restitution to consumers who were harmed by scams perpetrated by five firms? Wachovia would also pay nearly $9 million for consumer education programs and a $10 million civil penalty to the Treasury Department.
The Treasury Department said it believed thousands of consumers, many of whom were elderly, were harmed by teh millions of dollars in fraudulent transactions telemarketing scammers process through Wachovia. The bank was not directly involved in the scams but made millions in processing fees with the transactions.