CHARLOTTE -- Struggling Wachovia laid out painful steps for a turnaround on Tuesday, and chief executive Bob Steel made clear that the Charlotte bank's troubles aren't over.
The bank, which announced a second-quarter loss of $8.9 billion, said it would cut more than 10,000 jobs, slash the quarterly payout to shareholders, and shake up the mortgage unit that has plagued its bottom line.
"We're really in challenging times," said Steel, who was brought in two weeks ago to fix the troubled company. "I can't tell you that the improvements will be smooth and continuous from here."
Steel reaffirmed his commitment to address -- and perhaps sell off -- the bank's problem entities, and he repeated his desire to keep the bank independent. He hopes the dividend cut and other cost-cutting will save $5 billion of capital by the end of 2009. That means some bank projects could be on the chopping block, though Steel declined to be specific. And he said defaults will continue to rise in the bank's Pick-A-Payment mortgage portfolio -- the entity that has been the root of much of the bank's recent troubles.
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Still, the markets rewarded Steel and his team. Though Wachovia shares have fallen sharply since last summer, they rallied 27 percent Tuesday to $16.79.
Wachovia's plan includes laying off 6,350 people currently working for the bank. In addition, the company will eliminate 4,400 positions that are either already open or held by contractors. That's a total job loss revealed Tuesday of 10,750.
About 70 percent of the layoffs will be in the mortgage unit, which had shed 2,000 workers from last July through May as the credit crisis took root. Some of the positions left open also are in mortgages.
The company didn't provide details about the location of job losses. However, said Wachovia spokeswoman Christy Phillips-Brown, "We do not anticipate a large concentration of position reductions to occur in the Charlotte market."
Wachovia employs about 120,000 workers companywide, including 21,000 in the Charlotte area. As the area's second-largest employer behind Carolinas HealthCare, it is a major civic and economic player.
Dick Bove, an analyst at Ladenburg Thalmann, said Tuesday's layoffs could be just the beginning.
"These companies have dozens and dozens of divisions that no one has ever heard of," he said. "There are plenty of businesses that they will cut back, sell, reduce."
Steel said Tuesday that he's excited by Wachovia's potential.
"There are other organizations that would kill to have Wachovia's core strengths," Steel said on July 10, his first full day on the job.
Though corporate and investment banking struggled, the general bank enjoyed year-over-year growth in revenue, interest income, fee income and loans.
But even the general bank -- traditionally a Wachovia bright spot -- showed signs of weakness. Its earnings fell 23 percent over the year.
"As much as we would like to put aside the multiple charges and focus on the few good points of the quarter... that would be skewing the real story," said Peters, the Morningstar analyst.