Wachovia (NYSE: WB) will raise between $6 billion and $7 billion. Will the money come in at $28 where the bank trades now? That is already down by half from the 52-week high of almost $57. What a deal that would be.
But, no, the new financing will be at the take-under price of as little as $23.
Wachovia has moved its earnings release up to today, a sure sign of news, big news. The Wall Street Journal writes "According to people familiar with the situation, Wachovia’s deal is similar in structure to the $7 billion infusion announced by Washington Mutual Inc. last week" In other words it is a mess that undermines the stock value of current shareholders.
Wachovia did make its life worse by buying Golden West which had many of its loans in the troubled California market. But, the need for capital is also a sign that Q1 earnings at most banks could be worse than expected. All of the major money centers and brokerages have exposure to the real estate market through mortgage-backed paper. Even GE (GE) could not avoid the pain of the current financial crisis. Citicorp (B) and Deutsche Bank (DB) are selling LBO loans at a discount to help their balance sheets
Wachovia may be reporting earlier than most large financial firms, but its numbers are likely to tell Wall Street that the crisis in the credit markets is far from over. The omens of trouble are back in the atmosphere.
Douglas A. McIntyre