Wachovia Loss Sends Stocks Lower

123jump.com Staff
14 Apr, 2008
New York City

U.S. stocks edged lower after Wachovia cut its dividend by 41% and proposed to raise as much as $7 billion through convertible preferred stock offering. Wachovia also reported a loss in the first quarter and asset write down of $2 billion. UK media reports suggested that Citigroup is likely to write down assets of $12 billion and Merrill Lynch of $3 billion. Blockbuster proposed $1 billion in cash buyout for Circuit City.

[R]12:30PM New York – U.S. stocks trade lower on more losses and talks of merger between airlines and retailers.[/R]

U.S. stocks fell in the morning trading after a wave of news related to subprime losses and more talks of write-downs at Citigroup and Merrill Lynch.

Wachovia reports a loss, cuts dividend and plans to raise $7 billion

Wachovia bank reported loss of $350 million or $393 million including preferred stock dividend or 20 cents per share compared to $1.20 a year ago or $2.30 billion. The bank also lowered its dividend to 37.5 cents per quarter and expects to preserve $2 billion of capital.

Wachovia wrote down assets by $2 billion and plans to raise capital.

The news of large losses and dividend cut forced the stock down 10%. Wachovia ((WB)) stock fell $2.76 or 10% to $25.08.

The company in a press release said that plans to raise capital through perpetual convertible preferred stock. Sources in investment banking confirmed that the bank is likely to raise between $6.5 billion and $7 billion. The news of capital raising was first reported by Wall Street journal.

Non-performing loan losses ratio jumped 1.70% at the end of the first quarter from 1.14% from a year ago.

More losses at Citigroup and Merrill

The Sunday Times in London reported yesterday that Citigroup and Merrill Lynch will reveal additional sub-prime write downs totaling $15 billion.

The report notes that Citigroup will likely announce a revaluation of between $10 billion and $12 billion for its first quarter results on falling values of mortgage securities and the bank is likely to report a loss of $3 billion.

Analysts also expect Merrill will suffer $5 billion of write-downs, despite announcing $18 billion in write downs in the previous quarter, and the brokerage firm is expected to report a loss of $2.7 billion.

In addition, according to Sunday Times, Deutsche Bank is attempting to sell part of its 35 billion euros of asset backed and mortgage backed debts to a consortium of private-equity firms.

However JP Morgan is expected to post a small profit in spite of a large exposures to leveraged loans.

Retail sales rise

The Commerce Department reported retail sales in March rose 0.2% and revised the February sales to a decline of 0.4%. The March sales are likely to be revised lower as well.

Merger news

Movie rental retail chain Blockbuster made an unsolicited offer for Circuit City and offered to pay $1 billion in cash. Electronics retailer refused to negotiate with Blockbuster and said that company lacks funding for the deal. Blockbuster offered to pay between $6 and $7 per share.

Circuit City ((CC)) stock rose $1.12 to $5.02 and Blockbuster ((BBI)) fell 11% or 36 cents to $2.72.

In other merger news, Delta and Northwest are likely to merge if pilot unions of both battered airlines agree, this week. The news first reported by Wall Street Journal suggested that the merger may be announced as early as tomorrow.

Eaton trades up on earnings

Eaton Corporation, industrial equipment manufacturer reported first quarter revenue of $3.5 billion compared to $3.11 billion. Earnings in the quarter jumped to $256 million from $243 million. Earnings per share increased to $1.64 from $1.56 a year ago.

Eaton ((ETN)) stock jumped $1.90 to $80.86.

Asian Markets Review

In Tokyo Nikkei 225 Index closed lower 406.22 or 3.05% to 12,917.51, in Hong Kong Hang Seng index decreased 856.59 or 3.47% closed to 23,811.20. In Australia ASX 200 index lower 96.90 or 1.78% to close 5,342.40. In Malaysia KL Composite index decreased 13.36 or 1.07% closed to 1,233.43.

In South Korea Kospi Index decreased 33.00 or 1.85% to close at 1,746.71, Indonesia JSE Index edged decreased 31.45 or 1.37% to 2,272.48. Market of Thailand and India were closed today.