US bank Wachovia ousts CEO after losses

June 3, 2008

US bank Wachovia ousts CEO after losses

WASHINGTON - WACHOVIA, one of America's biggest banks, said on Monday that its chief executive Ken Thompson is leaving the bank as its board of directors seeks to stem hefty losses tied to troubled mortgage loans.

The Charlotte, North Carolina-based, bank said Mr Thompson was departing with immediate effect after eight years as CEO at the request of the company's board. It said new leadership was needed to revitalise the bank.

'Wachovia announced today that its current chairman, Lanty Smith, has been appointed interim chief executive officer, succeeding Ken Thompson, who is retiring at the request of the board,' the bank said.

Mr Smith said 'no single precipitating event' had caused Mr Thompson's ouster, but he said a 'a series of previously disclosed disappointments and setbacks' had hurt Wachovia's finances.

The bank has formed a special committee to recruit a permanent successor to Mr Thompson who spent over three decades climbing the corporate ladder at Wachovia. Like other US banks, Wachovia has seen its profits squeezed dramatically by the housing market slump and mortgage-related losses. Such losses have roiled domestic banks and big foreign banks that snapped up US mortgage securities during the housing boom.

'Thompson leaves behind a company struggling to keep its credit losses down and its capital position strong. We suspect Monday's announcement is signaling a very bad second quarter for Wachovia,' said Mr Jaime Peters, an industry analyst at Morningstar.

Wachovia's earnings declined late last year and it announced a first-quarter loss of US$393 million (S$536 million), compared with a profit of US$2.3 billion in the same period of 2007.

Some analysts said Wachovia and its rivals will struggle to turn their finances around during the second quarter as the housing market remains stuck in a rut and the wider US economy is also struggling for momentum.

As mortgage losses have increased, Wachovia and its competitors have sought fresh capital to bolster their balance sheets. Wachovia raised US$8.05 billion in April through a special stock offering and other banks have won capital injections from investors, including state-run investment firms based in China and Singapore.

Mr Smith said the mortgage turmoil, which has triggered a related credit crunch that has rippled around the world, was 'unprecedented,' but he said Wachovia would rebound.

'Despite continued hurdles, we have confidence in our strong liquidity, good capital position and solid business model,' he said.

Wachovia also announced that Mr Ben Jenkins, a vice chairman and president of its general bank division, had been appointed as an interim chief operating officer. It said no other management changes were presently planned.

'The management shakeup comes in the wake of a generally bleak 2007 and slumbersome start to fiscal 2008,' said Ms Andrea Kramer, an analyst at Schaeffer's.

Wachovia is the fourth-largest US bank by assets and has a market worth of around US$46.6 billion. Larger banks such as Citigroup and Merrill Lynch have suffered bigger mortgage-related losses. Both banks ousted their respective CEOs, Charles Prince and Stanley O'Neal, last year and installed new chief executives in a bid to boost their fortunes. Wachovia's shares closed down 1.7 per cent at US$23.40.
Source: AFP