Wachovia (WB)

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See all 5 Bulls Reasons Bulls: Reasons To Buy Over-Provisioned 100% agree Over-Provisioned Wachovia is trading at a $5.50/share premium to tangible capital/common share of ~$14.50, calculated as follows: Common Share Count: 2,138 million (1,992 at quarter-end plus 146 issued in April) Tangible Capital: $31.0 billion (quarter-end book value of $78.0 less intangibles... read more View or Edit Reason 1 votes 100% agree Despite losses, WB seems to be "well capitalized" 100% agree Despite losses, WB seems to be "well capitalized" Wachovia said it set aside $2.83 billion for credit losses - that’s up from $177 million a year earlier and nearly twice the $1.5 billion the banking firm set aside in the fourth quarter. Net charge-offs (loans it doesn’t expect to be repaid) quintupled from a year earlier,... read more View or Edit Reason 1 votes 100% agree Streamlined Infrastructure 0% agree Streamlined Infrastructure Streamlined Infrastructure :Compared to the larger competitors, Bank of America, and Citigroup, Wachovia has a history of choosing new industries selectively. By focusing its operations on the highest growing regions, Wachovia has been a traditional strong performer. View or Edit Reason 0 votes 0% agree See all 4 Bears Reasons Bears: Reasons To Sell Overpromising Financial Stock 100% agree Overpromising Financial Stock Wachovia (WB) joins the list of financials that promise one thing and deliver another as it reports a quarterly loss and tries to raise more cash, $7Billion worth, with a further offering. The 4th largest bank in America gave Wall Street a loss of $0.20/share vs. an expected... read more View or Edit Reason 1 votes 100% agree Bright spots few and far in between 100% agree Bright spots few and far in between Bright spots for Wachovia seem to be few and far between as the company took a further $2Billion in write-downs and set aside another $2.8Billion for future loan losses. With losses, come jobs cuts and dividend slashes. Much like its bigger sibling in the banking world,... read more View or Edit Reason 1 votes 100% agree Organic Growth for Now 0% agree Organic Growth for Now Organic Growth for Now : While Citi and other competitors are expanding in international markets through joint ventures and acquisitions, Wachovia has failed to follow suit. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion I would like to see a chart on how much they are losing in sub-prime and ARM compared with their ... more [Dismiss] [Done] See All Suggestions

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The Wachovia Corporation (NYSE: WB) is one of the world's leading full-service financial services firms. The firm's principal businesses include: general banking, corporate & investment banking, capital management, and wealth management. With a market capitalization of $106.38 billion, the firm has a strong presence on the east coast with key areas of operation in high growth regions.

Although an inverted yield curve has put significant downward pressures on loan margins, Wachovia has achieved sufficient diversification in revenues through its investment banking, capital markets and wealth management segments to remain profitable. Moreover, Wachovia's management had the foresight to close its subprime lending unit before it incurred any significant losses. Going forward, the bank may still be vulnerable to increased loan defaults should the problems in the subprime market spread to more credit worthy borrowers and if real estate prices continue to slip there is a strong possibility that demand for loans will continue to weaken, further dampening revenue growth.

Wachovia is one of the fastest growing financial services institutions. Ironically, its aggressive US growth may be hard to match if the firm continues to forego inorganic growth opportunities in Asia. It's competitors have are actively seeking such opportunities and thereby achieving a significant competitive advantage.

[edit] History

Wachovia was established in 2000 through the merger of First Union and the predecessor Wachovia Corporation. A series of mergers and acquisitions developed the basis of what the company is today. Recent transactions provided the firm with an increasing market share along the south-eastern United States. Before 2005, the company was known throughout the east coast as a premier commercial bank that focused on middle-market and small business banking. In 2006, the company acquired Golden West Financial and Westcorp is entering the west coast banking environment which has been predominantly served by Bank of America and Wells Fargo. In 2007, Wachovia also completed its acquisition of A.G. Edwards & Sons, Inc.

[edit] Business Lines

Wachovia's revenues are well diversified among its 4 key businesses:

[edit] General Banking

With a presence in 21 states, Wachovia focuses on individuals, governmental agencies, small businesses, and commercial entities. Mortgage services are sold in 50 states, and auto financing is offered in 46 states. Small businesses have been a particular strong point in the company's recent financial press release. The bank provides a individualized level of service depending on a client's revenue.

Commercial banks typically make money by paying depositors a lower interest rate than they charge on the mortgages that they fund through their deposits. This becomes increasingly difficult in the current environment, in which short term interest rates are higher than long term interest rates.

The yield curve has proved challenging for traditional commercial banks

[edit] Wealth Management

Wachovia provides financial advisory services to high-net-worth clients, families, and enterprises. The company also provides insurance services which include risk management, employee benefits, and corporate insurance plans.

[edit] Corporate & Investment Banking

Capital raising, mergers and acquisitions advisory services are among the specialties offered in this division. The firm specializes in advising private equity shops, hedge funds, and other firms in the financial services sector. The Corporate & Investment Bank also engages in investments in start-up firms, asset-based lending, as well as cash-holding services to its clients among other offerings.

[edit] Capital Management

Investment retirement plan and brokerage services are provided under this arm of the Wachovia Corporation. With offices in 47 states and in Latin America, the firm is poised to take advantage of its strong asset management team based in Evergreen Investments. The asset management team focuses on institutions, endowments, as well as advising pension funds.

[edit] Trends & Forces

[edit] The Market for Loans

Loan defaults, particularly in the subprime market have increased dramatically in recent months. As interest rates rose many borrowers find themselves at the mercy of their once low adjustable rate mortgages. Moreover, higher interest rates raise the cost of borrowing for all lenders, dampening overall demand for mortgages and other home loan products.

[edit] The Yield Curve

Typically banks charge higher interest rates on loans which qualify as long term debt than they they pay on deposits (short term debt). With the yield curve inverted, long-term rates are lower than short-term rates, making deposit accounts left profitable.

Latin America has performed well amidst returns of foreign capital inflows

[edit] Geographic Coverage

Domestically, Wachovia has a strong presence on the east coast, and with the recent acquisitions on the west coast, it will enter California, Arizona, Nevada, Colorado, and Texas.

The firm has made strong progress in entering the Latin American markets which has seen very strong growth in the real Gross Domestic Product in the past couple of years.

[edit] Corporate Developments

Mobile Banking: Banks across the industry have made progress into mobile banking issues. In 2006, the major banks including J P Morgan Chase (JPM), Citigroup, and Commerz Bank launched a campaign to open as many ATMs as possible. The idea of convenience is extended to a new level by phone-based mobile banking. Basic services like account management and fund transfers are among the possible options for mobile banking. Most importantly, it represents an outlet for those lacking bank accounts, are undocumented, and poor.

Remittances: With Bank of America (BAC) taking the first move into the remittances market, competitors and start-ups are taking small steps into the industry. At present, this segment represents a significant source of untapped revenue with very little competition.

[edit] Competitive Landscape (2006)

The major players in Wachovia's league are Citigroup (C), Bank of America (BAC), and SunTrust Banks (STI) These firms typically operate in a business model that gradually introduces clients to complex financial services and solutions as the client matures. In this way, these banking firms try to cater to the client's entire life span by offering as many products as possible. For this reason some have identified this strategy as building "banking supermarkets."

[edit] References

1. ↑ Calculated using each firm's domestic deposits as a share of total domestic deposits from FDIC ID Key Statistics (as of March 31, 2008)