dropped nearly 10% Friday after an analyst downgrade and news its CFO was leaving.
Robert Patten of Morgan Keegan slapped a sell rating on the Charlotte, N.C.-based bank following its miserable second-quarter earnings results and concern that the company might have to raise more capital.
Wachovia reported a staggering second quarter loss $8.9 billion earlier this week and said it was cutting its dividend by 86% to 5 cents a share, among other things to preserve capital. Investors had reacted favorably to new CEO Robert Steel's first public comments as Wachovia's head when he said that the bank
in light of the company's internal initiatives it was undertaking.
"We believe investors have become overly optimistic too soon, following comments that Wachovia does not need to raise common equity," Patten writes in a note on Friday. "We believe it is too early given the significant credit challenges ahead for Wachovia management, to make that call."
Of the southeastern U.S. banks he covers, Patten prefers
"Both of these banks, while facing challenges, appear to be better positioned in terms of capital and reserves to manage through the current crisis with better earnings visibility in 2008," he writes.
Wachovia has had a mountain of bad news attached to it this year following its 2006 acquisition of California residential real estate lender, Golden West, as loans once thought to be relatively good quality have soured. Steel, a former undersecretary to the Treasury, was hired on July 9 -- little more than a month after longtime head Ken Thompson was ousted following the company's quagmire of mortgage problems.
The downgrade comes after Wachovia also announced late Thursday that its CFO Tom Wurtz was stepping down.
Some observers say the departure likely stems from Steel's desire to "hand pick" new top executives needed to help identify and stanch the problems there.
"The departure does create a vacancy, and therefore uncertainty, in a senior level position at a company dealing with an array of challenging issues," writes Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners, in a note Friday. "That said, we think investors, while probably not terribly surprised by the announcement, will generally conclude 'change is good' at Wachovia.
It signals that Mr. Steel is moving swiftly to get his own person (or people) in place to put together and implement the battle plan for overhauling Wachovia."
Investors may also view the move as an extension of accountability, Fitzsimmons added, given that Wurtz was CFO in 2006 -- the year that Wachovia bought Golden West.
Wachovia shares, which slipped as low as $14.14, were recently down 7.9% to $14.45.