Wachovia Earnings Vaporize

Updated from 9:17 a.m. EST

Wachovia Bank(WB Quote - Cramer on WB - Stock Picks) on Tuesday reported fourth-quarter earnings nearly 98% lower than the year-ago period, as the bank suffered massive credit-related hits.

The Charlotte, N.C.-based bank posted a net profit of $51 million, or 3 cents a share, vs. $2.30 billion, or $1.20 a share, in the fourth quarter of last year. Earnings were significantly impacted by the bank's decision to increase its provision for credit losses more than seven times, to $1.50 billion, from $206 million in the year ago period.

Wachovia said it took the provision to cover expected losses due to "significant deterioration" in the housing market and related commercial real estate portfolios, as well as higher losses expected losses tied to consumer real estate and auto loan portfolios. Much of that hit is due to the bank's 2006 acquisition of option adjustable-rate mortgage lender Golden West.

"We took active and prudent steps in the second half of the year to deal with the market disruption and credit deterioration, and we believe this allows us to move forward from a position of strength despite the uncertain economic environment," Chairman and CEO Ken Thompson said in a company statement.

Thomson, in a call with analysts Tuesday morning, said he did not anticipate taking an impairment charge related to the Golden West acquisition, according to Reuters.

The bank brought in fourth-quarter revenue of $7.2 billion, a 16.5% drop for the year ago period.

Even after factoring out merger-related expenses associated with the bank's deal for brokerage A.G. Edwards, which closed Jan. 1, Wachovia earned just $160 million, or 8 cents a share, compared to $2.33 billion, or $1.21 a share, in the year-ago period. Analysts polled by Thomson Financial expected earnings of 33 cents a share on revenue of $7.40 billion.

Full-year profits, excluding after-tax, merger-related expenses, dropped more than 18% to $6.47 billion, or $3.34 a share, vs. $7.91 billion, or $4.70 per share, in 2006. Analysts expected earnings of $3.66 a share on revenue of $31.50 billion.

Wachovia's huge losses were mirrored by fellow Charlotte-based bank Bank of America(BAC Quote - Cramer on BAC - Stock Picks), which reported a 95% drop in fourth-quarter profits.

However, both banks were rallying along with other financial stocks in the wake of the Federal Reserve's emergency 75 basis point cut to the federal funds rate. The rate now stands at 3.50%.

Wachovia shares rallied more than 9% Tuesday, but more recently were up 3.9% to $32.01.