Wachovia Corp.'s retreat from mortgages continued last week as the Charlotte company confirmed plans to shutter mortgage offices and cut jobs in 19 states where it lacks a significant number of branches.
Company spokesman Don Vecchiarello said Friday that the $812 billion-asset company would stop offering a full slate of mortgage products in its Illinois, Kansas, and Mississippi branches and close offices in 16 other states.
"It didn't make economic sense to maintain mortgage specialists in states where we didn't have a financial center," he said. "We're focusing our mortgage efforts on geographies where we have sizable scale."
The office closings are to occur Aug. 15, and changes in the branches will take effect Sept. 30.
The decision came less than three weeks after new president and chief executive Robert K. Steel outlined "decisive steps" to preserve more than $5 billion in capital while addressing the company's lingering issues from its 2006 purchase of Golden West Financial Corp., an Oakland thrift company that specialized in option adjustable-rate mortgages. This deal and a series of risk management missteps led to the June 1 ouster of former chief executive G. Kennedy Thompson.
Wachovia last month cut its dividend for a second time and announced plans to reduce loans and securities by $20 billion and suspend or cancel several initiatives.
"We are being much more disciplined about the balance sheet and risk-reduction strategies," Mr. Steel said during a July 22 conference call. He also announced plans to cut annual expenses by $1.5 billion, which would require, among other things, cutting 10,750 jobs. Mr. Vecchiarello said that Friday's move would trim 126 jobs. Wachovia has also reassigned about 1,000 employees to contact pick-a-payment borrowers about refinancing into traditional mortgages.
Wachovia reported a second-quarter net loss of $8.7 billion, or $4.11 a share, its second straight quarterly loss. During the quarter, the company scaled back its mortgage exposure, which had ballooned after the Golden West deal and led to rising defaults and credit costs within a pick-a-payment portfolio that now totals $122 billion. The company said last month that it expects cumulative losses of 12% in that book over the life of the loans.
Last quarter Wachovia stopped offering a negative-amortization feature with its option adjustable-rate mortgages, essentially doing away with the pick-a-payment product. It also quit wholesale-mortgage originations and will no longer offer loans through outside brokers.
Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, said he expects more such cuts in the company's mortgage operation, including possible reductions in markets where it does have sizable branch networks.
Mr. Vecchiarello said offices earmarked for closing mostly came from the Golden West acquisition but said they did not contribute a significant portion of Wachovia's originations. He would not give specifics.
Wachovia entered Illinois and Kansas through the Golden West deal but has shown little interest in adding branches there. It has opened eight in each of those states, along with 13 in Mississippi, which it entered with the 2004 SouthTrust Corp. deal.
