Wachovia Corp. said Monday that it would eliminate 1,800 jobs, almost 8.5% of its work force, in a plan to reinvigorate profit growth.
The Winston-Salem, N.C., banking company said it would take up to $100 million in pretax charges related to the restructuring, mostly in the third quarter. The company projected that the cuts would reduce annual expenses by $100 million and result in an increase of $425 million in pretax profits by 2002. L.M. "Bud" Baker Jr., Wachovia's chairman and chief executive officer, said the decision to cut staff came after a strategic review that began last year and was focused on finding ways to increase revenues, inject capital in growth businesses, and control expenses.
Mr. Baker said in an interview that while his outlook is generally positive, recent economic trends indicated that "it is a challenging world, and performance will be particularly difficult."
It was the latest piece of bad news from the $70.8 billion-asset banking company, which like many other regional banks has been struggling to maintain momentum in the face of rising interest rates.
In June, Wachovia said steadily rising rates had pinched off growth in revenues from capital markets, mortgages, and investment services businesses. As a result, the company said, profit growth for the year would not meet expectations.
An increase in nonperforming assets, particularly from exposure to a single syndicated credit, also forced Wachovia to increase its provision for loan losses in the second quarter by $200 million.
The consensus for yearend profits was $4.66 a share Monday, far below the $5.45 consensus tracked by First Call/Thomson Financial before the June earnings warning.
Mr. Baker said that Monday's announcement came from just one of 14 ongoing projects within the company that are designed to eliminate inefficiencies and identify growth opportunities. About 65% of the staff cuts would come from the management ranks he said, and though the cuts are across the board, some of the biggest areas affected might be operations and consumer banking.
Asset management, corporate banking, and some consumer services are seen as areas of growth, Mr. Baker said.
Several other banking companies have announced steep job cuts in recent weeks, but those followed major acquisitions.
Last month Bank of America Corp. in Charlotte, N.C., said it would eliminate up to 10,000 positions, or 7% of its work force, mostly from its corps of senior and middle managers, which had ballooned in more than a decade of aggressive expansion.
First Union Corp. in Charlotte also said it would eliminate almost 5,300 jobs, or about 7% of its work force, as it quits certain businesses and sells off branches.
Earlier this year Chicago-based Bank One Corp. said it would cut 5,100 jobs, or about 5.5% of its work force as it restructured its own operations following a string of earnings disappointments.
Mr. Baker said that Wachovia's aggressive efforts to increase revenues over the course of the last several years inevitably lead to an increase in costs. Indeed, analysts said that while the company has had double-digit revenue gains in recent years, expenses have grown at a higher rate.
Last year revenues grew 14% while expenses grew 17%, including the costs of acquisitions. This goes against the traditional image of Wachovia, analysts said. "Competitive pressures have forced them to abandon their culture," said Nancy Bush, an analyst at Prudential Securities.
Mr. Baker said he expects costs, excluding the impact of acquisitions, to be flat next year.
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