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Wall Street cuts for Wachovia

The 12% staff reduction appears to represent the deepest retreat by any bank so far, and comes after Wachovia posted a $350 million first-quarter loss.

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Wachovia Corp. announced Monday it will slash its workforce on Wall Street by another 12% as the bank tries to recover from a particularly ill-timed expansion into mortgage lending.

The reduction of 500 corporate and investment banking employees -- most of them in New York and Charlotte, N.C. -- means the bank will have cut its ranks of Wall Streeters by 25% from its high last year. It appears to represent the deepest retreat by any bank so far.

The cuts come as Wachovia reels from an unexpected $350 million first-quarter loss. That loss is compared with net income of $2.3 billion in the year-earlier period and was due mainly to the bank writing down mostly mortgage-related assets by $2 billion and boosting loan-loss provisions to $2.8 billion, or double the prior quarter's amount. To plug the holes to its balance sheet, the bank raised $7 billion in new capital and slashed its dividend by 41%.

Should the mortgage losses worsen, Wachovia's days as an independent institution may be numbered. CreditSights analyst David Hendler said in a research report that Wachovia and its network of 3,300 branches would make a tempting target for J.P. Morgan Chase & Co., which until recently was interested in acquiring Washington Mutual Inc.

Wachovia's problems drive home just how badly the bank bet when, at the height of the housing frenzy two years, ago, it acquired big California mortgage lender Golden West for about $25 billion.

At midday the bank's stock was down 10%.

In addition to facing big problems in real estate lending, Wachovia's investment banking unit generated $77 million of losses in the first quarter and had $430 million of losses in the prior three-month period. The bank has been trying to boost its Wall Street presence for many years, most recently by paying $7 billion last year to acquire retail broker A.G. Edwards Inc. The bank has also in recent years been aggressively building its branch network in New York, where it remains far behind not just leaders Chase and Citigroup, but also fellow Charlotte-based giant, Bank of America.

Wachovia's latest capital-injection raises questions of just how good a handle management has on its business. Earlier this year, Wachovia raised about $6 billion, but Chief Executive Ken Thompson said during a conference call that market conditions deteriorated more than the bank had anticipated, forcing it to return to investors for another round. It isn't clear what sort of terms the bank consented to now, but it agreed to pay a 7.98% dividend when it sold $3.5 billion worth of preferred stock in February.

Mr. Thompson said on the call that Wachovia will use its cash to manage its ways through the difficult environment and try to avoid tapping investors yet again for funding.

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