David Carroll is about to get his next big job at Wachovia Corp.: winding down its $122 billion option adjustable-rate mortgage portfolio.
It may be the hardest, and most important, assignment of his 27 years with the Charlotte company.
"I've always been intrigued by change … and have been fortunate to be exposed to many inflection points here," he said in an interview Tuesday. "We've had our down moments, though, and now is certainly one of them."
Mr. Carroll, currently the head of capital management, said he has worked on roughly 15 merger integrations, more than two dozen cases of due diligence, and several cost-cutting initiatives. "I kind of know the wiring around here."
Resolving the so-called pick-a-payment book inherited in the October 2006 purchase of Golden West Financial Corp. will be no small task. The $812 billion-asset Wachovia said last month that it expects cumulative losses of 12%, or $14.6 billion, in the portfolio. About 1,000 employees have been reassigned to contact more than 500,000 customers about refinancing into more traditional mortgages.
Loans that cannot be refinanced will likely be sold, Mr. Carroll said.
"This will be an intense process," he said, though he would not provide many more details before Robert Steel, Wachovia's new chief executive, tackles the topic next week at a conference hosted by Lehman Brothers.
Since his hiring July 10, Mr. Steel has nudged both chief financial officer Thomas Wurtz and chief risk officer Donald Truslow to leave after successors are hired. But he told analysts at an Aug. 4 luncheon that he does not expect any more major management changes.
What's more, Lanty Smith, Wachovia's chairman, said in a statement to American Banker Tuesday that Mr. Carroll is a "proven, versatile, well-respected leader" and an "unparalleled" team player with a track record of "achieving excellent results."
Some had figured Mr. Carroll might be pushed out, as well, because he was a key lieutenant to G. Kennedy Thompson, who was ousted as the CEO in June. Mr. Thompson's sudden departure "was unsettling for a lot of people," Mr. Carroll conceded, but his relationship with the new boss seems solid.
Mr. Steel has proven himself "a very quick study" and has brought "a very realistic" view to improving Wachovia, Mr. Carroll said. "I have made a bet on Bob Steel. He has brought stature to the company when it was badly needed."
Mr. Carroll is taking over the job of resolving the pick-a-pay book from Mr. Wurtz.
Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, who first reported Mr. Carroll's new assignment in a note to clients last week, called it his most daunting job to date.
"It is ambitious, proactive, and very unclear how it's going to turn out," Mr. Fitzsimmons said in an interview last week. "But he's solid, and he has gotten the desired results in the past."
Mr. Carroll said he is ready to juggle the mortgage effort with his leadership of the capital management unit, which is beset with its own challenges. It lost $21 million in the second quarter after setting aside reserves to cover a settlement tied to auction-rate securities.
Wachovia also continues to integrate the October purchase of A.G. Edwards & Sons Inc. Broker attrition from A.G. Edwards is slightly higher than the 3% goal set when the deal was announced, but Mr. Carroll said Wachovia has filled the vacancies with brokers who are twice as productive.
The key to handling dual roles will be assembling the right senior managers, he said. "I've done that before with other cross-organizational initiatives."
One of his earliest assignments under Mr. Thompson involved shutting down Money Store Inc., a California subprime lender his company (then called First Union Corp.) had bought two years earlier. The closure was part of a sweeping restructuring Mr. Thompson launched shortly after becoming the CEO in April 2000. "We took the Money Store portfolio and ran it like a distressed asset portfolio," Mr. Carroll said, turning it into a profitable third-party servicing platform that Wachovia sold in 2006 to Barclays PLC.
His role as a sort of Swiss Army knife at Wachovia dates to the early 1990s, when then-president John Georgius recruited him to handle the due diligence for a target company, Maryland National Corp.
Though NationsBank Corp. (now Bank of America Corp.) walked away with that acquisition, Mr. Carroll said he learned the importance of building a team. "I had never handled due diligence before. It taught me that the knowledge you need for almost everything comes from tapping into other people's experience and getting them organized."
His profile rose quickly under Mr. Thompson's leadership. Mr. Carroll was the head of integration for the purchases of the old Wachovia in Winston-Salem, N.C., and SouthTrust Corp. in Birmingham, Ala., and he handled the joint venture with Prudential Securities Inc. Outsiders have largely said these projects went well.
A byproduct of these high-profile assignments had been a close link between his career and Mr. Thompson's. Several analysts speculated that Mr. Carroll may have been considered a possible successor to Mr. Thompson.
Wallace Malone, the former SouthTrust CEO who retired as a Wachovia vice chairman in 2006, said in an interview last week that Mr. Carroll "was clearly" one of Mr. Thompson's favorite executives. "Ken thought a lot of him," largely because of Mr. Carroll's versatility. "There was a tendency to shift him around, but when he was assigned a project, he clamped down on it."
According to one city insider, who asked not to be named, Mr. Thompson had touted Mr. Carroll as someone people in Charlotte needed to know. "He got his power initially as an extension of Ken" but quickly built his own reputation with tasks such as merger integrations, the insider said. "If there is an internal backlash against David, it will be short lived."
Mr. Carroll was picked in June to scrutinize more than 500 proposed capital projects, making recommendations on what to delay or cancel. Mr. Steel has said that many of the recommendations are being implemented, including a slowdown of branch expansion, with a goal of lowering next year's capital expenditures by $350 million.
Some initiatives in which Mr. Carroll has been involved failed to meet expectations, including the $450 million Future Bank project in the late 1990s. The project, which emphasized electronic banking, video kiosks, and product sales over traditional teller transactions, was intended to boost profits but proved too ambitious for its time. It led to revenue shortfalls, customer backlash, and an acknowledgement from the company that service had fallen below acceptable levels.
"I think we were doing the right things but did it the wrong way," he said. "We moved faster than our employees and customers. The biggest thing we learned was that people have a certain capacity for change, and you can't outstrip that."
Analysts said Mr. Carroll benefited by not being directly involved with the integration of Money Store, Golden West, or CoreStates Financial Corp., which are often cited as some of Wachovia's worst strategic moves.
He "wasn't tainted by much of the negativism directed toward Ken and others in the latter stages," said Frank Barkocy, the director of research at Mendon Capital Advisors LLC.
Though Mr. Carroll says he is capable of managing the pick-a-pay retreat and the capital management business, analysts say they are not convinced he will hold both jobs in the long term.
Sandler's Mr. Fitzsimmons said Mr. Carroll may move to a bigger role at Wachovia's general bank or become the chief operating officer, a job which could put him in line to succeed Mr. Steel.
Mr. Patten said: "David Carroll can add to the future in terms of returns. He has always been a very capable team player, and his longevity is a testament that he hasn't done a bad job. … If Bob Steel wants to craft an exit plan, David must be seen as capable and deserving, but they have to get through the next year and a half."
Mr. Carroll would not discuss any future roles, except to say: "I'm committed to this Wachovia. We're a better company than the stock reflects, and we have powerful businesses that are being overshadowed by Golden West. But we've got a lot of work ahead of us to get this company where it belongs."