Wachovia's Steel Soothes Street (Update3)

Steel, who worked with Treasury Secretary Henry Paulson at Goldman Sachs (GS Quote) prior to his government service, was named to Wachovia's top job on July 9. The move came a little more than a month after the company ousted its longtime CEO Ken Thompson, amid rising credit losses, particularly in its $120-billion option-ARM portfolio, which it inherited from Golden West.

Wachovia's second-quarter loss included a $6.1 billion non-cash goodwill impairment charge in commercial-related sub-segments reflecting declining market valuations and asset values. Wachovia said the goodwill impairment charge has no impact on its tangible capital levels, regulatory capital ratios or on liquidity.

Excluding the goodwill impairment charge and a merger and restructuring expense of $128 million, Wachovia posted a net loss of $2.67 billion, or $1.27 per share.

The company also took a $5.6 billion provision to cover net charge-offs and increase the reserve by $4.2 billion, it said.

Wachovia said it generated revenue of $7.5 billion, excluding the goodwill impairment and other items that contributed to the quarterly loss.

To preserve capital, the bank said it has already reduced its mortgage employee headcount by 2,000 through June, and plans to cut 4,400 employees in its mortgage segment over the next year, according to presentation slides.

Wachovia said the dividend cut, the second one in three months, will conserve roughly $700 million of capital each quarter.

The company also said it has outlined additional initiatives "ranging from reducing expense growth and capital expenditures, reducing earnings assets, repositioning the certificate of deposit book and generating further growth in low-cost core deposits and other deposits."