WASHINGTONFollowing a management shake-up last week and several recent dings to its reputation, Wachovia Corp. plans to hire a third-party consultant to review its internal controls.
G. Kennedy Thompson, who was stripped of his chairman title and duties last week but remains the president and chief executive, did not address his change in duties Monday during a presentation at a conference in New York. However, he did say that he met with some of the $808 billion-asset Charlotte companys directors Saturday to discuss the review.
"The company will conduct a joint management-led, audit-committee-led look at all of our controls," he said a conference hosted by UBS AG. Wachovia has yet to select the third party that will conduct the review, Thompson said, but it should begin this week and would "probably take three to four months." The review should allow his company to receive "a clean bill of health" and "come forward and say this is a company that's in control and a company that can perform."
The announcement was received well by Wall Street, though some said they would prefer if Wachovia's management and board did not participate.
Gary Townsend, president and CEO of Hill-Townsend Capital LLC, said in an interview that such a review "was long overdue" and suggests that Wachovia's management "hasn't been doing its job." He also said he is pleased the board "had finally taken note of the situation."
Nancy Bush, president of NAB Research LLC, was more skeptical of the plan, given the role that Wachovia executives and certain directors are expected to have.
"They need to be absolutely hands off," she said in an interview. "I want to hear that at the end of it that the results will be reported straight to shareholders and not filtered through management or the board."
Analysts said they want the third-party consultant to pay considerable attention to the decisions made by Thompson and three other Wachovia executives: Thomas J. Wurtz, its chief financial officer; Donald Truslow, its chief risk officer; and Steven E. Cummings, the head of corporate and investment banking.
A Wachovia spokeswoman said none of those executives would be available for comment.
Wachovia has stumbled several times recently. Last month it agreed to pay $144 million to settle a government probe into its ties to telemarketers. The Justice Department is investigating its possible role in the alleged laundering of drug proceeds by Mexican and Colombian money transfer companies. In its quarterly filing Monday, Wachovia said its Wachovia Securities LLC had received inquiries and subpoenas from the Securities and Exchange Commission and several state regulators on the underwriting and sale of auction-rate securities. In the filing, Wachovia amended its first-quarter results for the second time in as many weeks, reporting a net loss of $707 million, or $1 million less than its amended report last week. Both amendments cited major losses from bank-owned life insurance. This quarter it expects to record a noncash charge of $800 million to $1 billion after taxes to cover exposure to certain leveraged-lease transactions it conducted from 1999 to 2003.
Thompson said Monday that it was a "coincidence" that all of those issues surfaced within the span of a few weeks. The issues give "the perception that Wachovia is a company in crisis," but "I want to assure you that that is not the situation at all."
The issues surfaced after Wachovia's annual meeting last month, when several shareholders demanded that Mr. Thompson resign. They voiced frustration with the October 2006 purchase of the Oakland, Calif., thrift company Golden West Financial Corp. and the decision to slash the dividend and raise $8 billion of capital. Executives had repeatedly said that its capital position and dividend appeared secure.
On Monday, Thompson also cautioned investors that credit quality is deteriorating beyond mortgages. "All credit is getting worse," he said. "We will see increases across all portfolios."
Wachovia also plans to cut head count in its fixed-income business by a third and to eliminate 10% of the support positions in its corporate and investment bank, according to a slide for the conference. It was unclear whether those cuts were part of the 500 investment banking positions the company said it would cut last month.
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