Wachovia taps treasury official for top job

Jul 09, 2008 (The Charlotte Observer - McClatchy-Tribune Information Services via COMTEX) -- WB | Quote | Chart | News | PowerRating -- Wachovia Corp. on Wednesday named former U.S. Treasury Department official Robert Steel its new chief executive officer, effective immediately, ending a more than month-long search to replace Ken Thompson.

Interim CEO Lanty Smith will continue as chairman. All business and staff units will report to Steel. Ben Jenkins, who had been interim chief operating officer, will continue to serve as vice chairman and head of the general bank.

The Charlotte bank, saddled with a struggling mortgage unit, also said it expects to report on July 22 an after-tax loss available to common stockholders of up to $2.8 billion, or $1.33 per share. In addition, it expects a non-cash goodwill charge that will impact earnings but not hurt regulatory capital ratios.

Contributing to the red ink, the bank said it was setting aside $4.2 billion for expected losses, $3.3 billion of which is related to Pick-A-Payment mortgages inherited in its troubled 2006 Golden West Financial Corp. acquisition. Wachovia posted a $707 million loss in the first quarter.

Steel, who has stepped down as under secretary of the treasury for domestic finance, joined the department in 2006. Like his boss, Treasury Secretary Henry Paulson, he is an alumnus of investment bank Goldman Sachs Group Inc.

Steel, 56, is a Durham native and is chairman of the Board of Trustees at Duke University, his alma mater. Steel could not be reached for comment. "Bob is a distinguished and widely respected leader in the financial services sector whose vast experience and deep knowledge make him the ideal candidate to lead Wachovia," Smith said in a statement. "The Board is unanimous in its decision that Bob is the right person to provide sound leadership to build on Wachovia's core strengths and successfully manage the company through the current environment as a strong and independent company."

Said Steel in a statement: "Clearly, there are challenges ahead in our current climate, but I am encouraged that most areas of the company continue to perform well, and this performance is a testament to the quality of Wachovia's employees and the longstanding excellence of service to customers and clients."

A knowledgeable source had told the Observer earlier in the day that the search was nearing an end, as Steel's name emerged as a top candidate.

Interim CEO Smith earned his law degree at Duke and served on the board of trustees from 1997 to 2003. The bank last month said it hired Goldman Sachs to analyze its troubled loan portfolio.

Steel joined Goldman Sachs in 1976 and retired in 2004 after rising to vice chairman. He served as a senior fellow at the Center for Business and Government at the John F. Kennedy School of Government at Harvard University from 2004 to 2006. In his treasury department role, he served as Paulson's principal adviser on domestic finance and led the department's activities involving the U.S. financial system and related economic matters.

Steel would bring to Wachovia a gold-plated resume that could help satisfy restless shareholders. But he doesn't have experience running a retail bank, Wachovia's forte.

As the Wachovia's search for a new CEO extended beyond a month, speculation had mounted over who will take charge at the nation's No. 4 bank by assets. Possible names had ranged from former Bank of America Corp. chief financial officer Al de Molina to insiders such as Jenkins.

The bank's stock is down more than 60 percent this year. Wachovia shares closed Wednesday down 8 percent at $14.29.

The bank faces ongoing speculation that it could be a takeover candidate by a rival. Steel would bring new stability but possibly stoke rumors of a possible tie-up with Goldman. Smith has said the board wants Wachovia to stay independent.

Thompson, a UNC Chapel Hill alumnus and Rocky Mount native, was asked to retire as the bank wrestled with rising losses from its ill-timed Golden West deal, at the peak of the housing boom. The bank last week said it would stop making mortgage loans that have an option that can increase a customer's loan balance, a one-time Golden West staple.

Miami-based bank consultant Ken Thomas said an appointment from the public sector makes good sense. "The regulators are very tough right now," said Thomas. "They're all watching very closely. Wouldn't it be nice to have somebody at the board level in Charlotte who speaks their language, the Beltway language?"

The bank needs a new leader who can acknowledge mistakes and spearhead a turnaround plan, Thomas said. He predicts that after a new CEO is announced, the bank will lay off more employees, close branches and seek capital from alternative firms, like a sovereign wealth fund or private equity firm.

Of Steel, he added: "That would be the best acquisition they made in some time."

It would be wise to install a new CEO before second-quarter earnings are announced, added Bert Ely, a Virginia-based bank consultant. "They might want to announce the new CEO as positive news and hope that that swamps the bad news," Ely said. "It also gives the new person a chance to be prepared to say something in regards to the second quarter."

The installation of a new CEO probably signals Wachovia's intention to remain independent, Ely said. But with its stock trading at a third of the price it was a year ago, Wachovia is still an attractive takeover target. "A lot of it is going to depend on how the market reacts to whoever they announce," Ely said.

The bank said Wednesday it will provide more information about efforts to cut costs and to reduce its mortgage exposure as part of its second-quarter earnings announcement.

In a statement, Paulson praised his former colleague and said Assistant Secretary for Financial Markets Anthony Ryan will take on a broader role in the department.

"Bob Steel has been a friend and colleague to me for more than 30 years," Paulson said. "He has served the President and the public with ingenuity and dedication during extraordinary times in our financial markets. I know he will excel in his future endeavors."

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