Wachovia Plunges After Warning of Shortfall

Updated from 11:38 a.m. EDT

Shares of Wachovia(WB Quote) plunged Thursday after the Southeast regional banking company said its revenue and earnings growth would fall short of Wall Street's forecasts.

Citing rising interest rates, the Winston-Salem, N.C.-based company said growth was slower than analysts had predicted in its capital markets, mortgage and investment businesses. Lending margins have been "modestly reduced."

Both quarterly and annual growth rates will be lower than analysts had anticipated, the company said. Analysts expected net income of $1.34 a diluted share for the second quarter ending this month and $5.46 a diluted share for the year, according to a poll by First Call/Thomson Financial of 18 brokerage firms for the quarterly predictions and 21 firms for the annual predictions.

Wachovia shares closed down 13 1/8, or 19%, at 57 1/16. The KBW Banks Index, which tracks the nation's 24 largest banks, finished down 39.90, or 5%, at 799.92.

The Federal Reserve Board has raised short-term interest rates six times in the past year. On Wednesday, the Fed said in a survey of regional economic conditions that growth in some sectors -- including banking -- slowed in April and May. Banking companies were hurt by a combination of factors, including the higher interest rates, which increase the cost of borrowing, reducing mortgage activity and loan demand. And volatility in the Nasdaq stock market scared some Internet companies away from their plans for initial public offerings, slowing underwriting business.

"Notwithstanding the difficult interest rate environment, Wachovia should still achieve good growth in revenue and earnings although at a somewhat slower pace than the growth rate reported in 1999 or previously expected by management in 2000," said Robert S. McCoy Jr., chief financial officer.

Wachovia also said it planned to take a special provision expense of approximately $200 million in the second quarter to increase its allowance for loan losses and coverage of non-performing assets.

Wachovia had reported assets of $68.8 billion and shareholders' equity of $5.8 billion as of March 31, 2000. In 1999, Wachovia reported revenues, excluding loan loss provision expense and securities gains, of $4.121 billion, up 13.6% from 1998. Wachovia's operating earnings in 1999, excluding merger-related charges, were $1.024 billion, up 10.1% over 1998.