$5.54
0.00 (0%)
Wachovia Corp (WB.DL)
CAPS Rating:
Provides a wide range of commercial and retail banking and trust services through full-service banking offices located in states throughout the Southeast. The company provides various other financial services, including mortgage and investment banking.
RSS Headlines
Fool UK
Recs
There is a lot of speculation that the worst of the credit crisis is over. If sub-prime were the only concern that might be true but the next wave will be prime borrowers with option ARM loans. As average house prices continue to fall and option ARM rates begin to reset, over the next year banks like WB and WM will continue to perform poorly. Golden West, now part of Wachovia, created the option arm and has billions of dollars of exposure, much of it concentrated in hard hit California. This one will have to wait until the end of 2008 or early 2009 to perform well.
The activist shareholders will be in this stock when it gets driven down to 18.90. Check out all of the PUT prices at 17 and the Oct 15 that people are paying up for. It is amazing that 1 year ago WB was the God of Banking....they will be a take out candidate. Watch.
The option ARM loans may reset but they'll be resetting to the currently low interest rates that we have today.
Wachovia's option ARM are not going to create losses because of reseting rates. That is definately the case for Countrywide, Indymac, and WM. You need to understand the type of option ARMs they have in their portfolio, how they reset, and how they compare to WM. I am all for the bear but the losses are going to because of good old fashion poor management and not bad assets. Read my post and you will understand.
I am curious to see if the news surrounding the turn -around plan announced last week has changed your position. Pay particular attention to: "Shift about 1,000 mortgage-origination employees to assist customers to refinance and restructure the pick-a-payment mortgages." Also, consider the legislation that was pushed through congress over the weekend. Finally, whether you agree with it or not, consider Secretary Paulson sitting at the Treasury with a blank check, the ability to print as much money as he wants, and Ben Bernake's recent activism in the financial sector. Let me be clear, I'm not supporting purchasing the stock, but I would be worried about holding any major short positions on this stock. It seems like the easy money has already been made shorting financial stocks.WACHOVIA'S TURNAROUND PLAN Cost-cutting target: $1.2 billion by 2009 Cut 10,750 jobs, including 6,350 active jobs and 4,400 open positions and contractors. Most of the job losses will come from the company's mortgage business. Exit wholesale mortgage lending business, meaning it will no longer offer home loans through brokers. Cut the quarterly common stock dividend to 5 cents per share, which will conserve about $700 million of capital per quarter. In May, the company had cut its dividend to 37.5 cents per share from 64 cents. Cease offering its "pick-a-payment" mortgage it acquired with its purchase of Golden West Financial Corp. The bank discontinued the minimum-payment option on all new loans, a process that allowed a borrower to make payments lower than the interest due on the loan. Shift about 1,000 mortgage-origination employees to assist customers to refinance and restructure the pick-a-payment mortgages.
Over the next 4-5 months, I think the Wachovia stock price could go either way but expect at least one more test of its lows. The biggest short term problems are the continued decrease in house values, the huge inventory levels, and the tightening standards for loans. Eventually the turn-around plan will help. Unfortunately there are still a lot of people with mortgages they either can't afford or that they decide to bail on because they are so upside down and sinking further. Can Wachovia refinance mortgages if the holder is upside down with no cash or if the monthly payments of the refinanced loan are too high? The governments bail out plan doesn't look to solve those problems. Regardless the results are still months down the road and the stock price is likely to see some large fluctuations in the meantime.I'm watching for the next big dip and then I will stand on the sidelines regarding the regional banks until after the the end of 2008. The Fed will likely start raising rates after the November elections. Maybe house values will show real signs of a bottom by then.
I think you are dead on with the purchase of this stock. Although I think rising rates will likely worsen the housing market. Inflation (which will lead to higher interest rates) is the only thing that will likely slow the downhill slide of the housing market by making the depreciation one of purchasing power losses rather than market value loss. That being said, inflation is just going to cut at the bottom line of any income potential for most banks. Since 75% of Wachovia's portfolio is based on ARM mortgages they will be fairly insulated but that insulation comes at a price, more portfolio forclosures.