Wachovia’s CEO Ousted

I’m glad we had Golden West Financial on our 2006 Buy List, and I was glad that Wachovia (WB) bought the company. For the tracking purposes of the Buy List, shares of Wachovia replaced the shares of Golden West. However, there was no way I was going to keep Wachovia on the 2007 Buy List. Fortunately, that decision proved correct.
What was our good fortune was bad news for Wachovia’s CEO Ken Thompson. He was let go yesterday by the board of Wachovia. BusinessWeek reports:

According to one Wachovia insider, Crutchfield’s downfall came when “he stopped listening” to his other executives. Likewise, it’s hard to believe Thompson didn’t get resistance from his own management team about buying Golden West—and ignored it.
Because no one outside of Thompson and Golden West CEO Herb Sandler seemed to like the deal from the moment it was announced. Indeed, in the initial conference calls with analysts and investors after the deal, Thompson was on the defensive from the outset.
For Thompson, the Golden West purchase gave him the beachhead in California he had long desired. It also gave him an array of creative mortgage products to pump through his broker channel. But the ink was barely dry on the Golden West deal in late 2006 when the housing bubble in markets including California and Florida began to deflate. And by early this year, the mounting losses from Golden West, coupled with deteriorating credit quality in the rest of the bank’s portfolio, began to hit Wachovia hard: The bank reported a $393 million loss in the first quarter and then amended the report in mid-May to say it really lost $708 million after a review of its portfolio of bank-owned life insurance. That forced the bank to cut its dividend by more than 40% and to sell $8 billion in new shares—a move that served to bolster Wachovia’s equity but diluted the value of existing shareholders’ stock.

Posted by on June 3rd, 2008 at 10:56 am


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