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Wachovia Loses CEO Bonus

Laurie Kulikowski

Executive compensation at Wachovia(WB Quote - Cramer on WB - Stock Picks), like several other large banks and brokers slammed by the housing meltdown and credit crunch, took a turn for the worse last year.

CEO Ken Thompson's "aggregate performance compensation" for 2007 totaled $12.3 million, down 42% from 2006, according to a proxy statement filed with the Securities and Exchange Commission. The figure includes base salary, cash bonus, restricted stock and stock options.

As a result of the poor performance of the Charlotte-based lender compared to several performance targets set by the board, Thompson didn't receive a cash bonus, nor did he get restricted stock for 2007, the filing said.

The Charlotte lender also yanked cash bonuses in 2007 for four other senior executives.

Thompson was authorized to receive a cash bonus of as much as $6 million last year. CFO Tom Wurtz was to get up to $2.75 million, while Ben Jenkins, head of Wachovia's general bank, was to receive up to $3.5 million. Two other executives, Wachovia's head of corporate and investment banking Stephen Cummings and David Carroll, head of capital markets, were to receive up to $4.25 million and $4 million, respectively.

Stock-based awards for the executives also took a hit last year, Wachovia said.

Wachovia's compensation committee set a 2007 cash EPS target of $5.11 a share and profit of $6.5 billion for performance-based rewards. Wachovia's actual cash earnings were $3.48 a share and profit of $4.5 billion last year, the filing said.

"The financial results for Wachovia and its peers were significantly impacted by sustained weakness in the fixed income markets that resulted in a fundamental re-pricing of credit and liquidity risk," Wachovia said in the filing. "The impact of this re-pricing risk was most notable for securities with exposure to subprime residential mortgages. ... Wachovia's mark-to-market losses on such securities were significant. Aggregate losses in the industry on such securities were unprecedented."

Wachovia wasn't the only bank that cut the cash bonuses given to top executives -- particularly those hard hit by the decline in the mortgage industry.

Washington Mutual's(WM Quote - Cramer on WM - Stock Picks) CEO Kerry Killinger declined to accept his bonus, while bonuses for other top executives at the Seattle lender were just one-third of the original targets.

National City(NCC Quote - Cramer on NCC - Stock Picks) also sharply cut into bonuses paid to top executives.

"The impact of the deterioration in subprime mortgage portfolios and its impact on lending practices of other mortgage lenders has contributed to substantial declines in home prices in many markets where Wachovia has loans that are not considered to be subprime loans," Wachovia continued. "While Wachovia's losses on residential loans in 2007 were relatively low, we anticipate losses will increase in future periods as a result of borrower defaults in geographies where home price declines have been the most severe. This outlook for increased charge-offs resulted in a substantial increase to Wachovia's loan loss provision expense in 2007, although the charge-offs are not expected to occur until future periods."

Wachovia acquired California mortgage lender Golden West in 2006. The lender was best known for originating Option ARMs, in which borrowers could choose one of several payment options. But the housing market has soured since the purchase, particularly in California. Wachovia has acknowledged that it expects to see increased losses there.

Shares of Wachovia fell 3.7% to $26.19 on Monday. The stock is down 50% from a year ago.

Know What You Own: Wachovia operates in the financial services industry, and some of the other stocks in its field include Bank of America (BAC Quote - Cramer on BAC - Stock Picks), Citigroup (C Quote - Cramer on C - Stock Picks), SunTrust Banks (STI Quote - Cramer on STI - Stock Picks) and Fifth Third Bancorp (FITB Quote - Cramer on FITB - Stock Picks). These stocks were recently trading at $36.05, $20.68, $56.42 and $22.83 respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.