June 2 (Reuters) – Wachovia Corp (WB.N: Quote, Profile, Research) said on Monday it ousted Ken Thompson as chief executive of the fourth-largest U.S. bank, in the wake of mounting legal and regulatory troubles and an ill-fated purchase of a big mortgage lender as the nation's housing boom was about to go bust.
Lanty Smith, who replaced Thompson as chairman last month, was named interim chief executive. Ben Jenkins, the vice chairman and head of Wachovia's retail and business bank, was named interim chief operating officer.
The Charlotte, North Carolina-based company said Thompson is retiring at the request of its board of directors.
Thompson had been chief executive since April 2000, and until last month had been chairman for five years. He joins a growing list of top banking chiefs to lose their jobs since the global credit crisis began last summer, including Citigroup Inc's (C.N: Quote, Profile, Research) Charles Prince and Merrill Lynch & Co.'s (MER.N: Quote, Profile, Research) Stanley O'Neal.
“There has been a steady flow of negative news, all of which may have reduced confidence in the company's controls,” said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP. “There may also be a recognition that Ken's credibility with investors may have fallen to a point where the board decided it would be better off with a new face.”
None of the executives was immediately available for further comment.
Wachovia shares fell 55 cents to $23.25 in pre-market electronic trading. The shares are down by more than half over the last year.
GOLDEN WEST NOT GOLDEN
Mounting loan losses pushed Wachovia in April to raise $8.05 billion in capital, and cut its dividend 41 percent.
The bank nearly doubled its first-quarter loss to $708 million because of a write-down tied to life insurance policies. It also said it may take a $1 billion charge because of a federal court ruling over leases, and agreed to pay up to $144 million to settle federal allegations over telemarketers.
Meanwhile, the Wall Street Journal said federal prosecutors are investigating the bank over alleged laundering of drug proceeds by Colombian and Mexican money-transfer companies. The bank has said it has a strong program to stop money laundering.
Since engineering the 2001 merger of First Union Corp with Wachovia, Thompson has won a reputation for smoothly integrating acquisitions, including the 2004 purchase of another southeast U.S. bank, SouthTrust Corp, for $13.7 billion.
But Thompson has admitted to poor timing for his much-criticized $24.2 billion purchase in October 2006 of Golden West Financial Corp, an Oakland, California-based mortgage specialist and savings and loan.
Losses from “option” adjustable-rate mortgages that let borrowers pay less than the interest due helped cause nonperforming assets to more than quadruple from a year earlier to $8.37 billion.
Wachovia has also suffered from its investment bank's exposure to structured products and commercial real estate.
“A series of previously disclosed disappointments and setbacks cumulatively have negatively impacted the company and its performance,” Smith said in a statement. “The board believes new leadership will help to revitalize and reenergize Wachovia, and enable it to realize its potential.”
Through Friday, Wachovia's market value had fallen by half to $47.4 billion from about $96 billion when it announced the Golden West purchase in May 2006, Reuters data show.
“Wachovia has lost an incredibly large amount of market capitalization, and that came in part from how it chose to structure its business,” Fitzsimmons said.
“At this stage,” he added, “Wachovia needs to aggressively address the problems in California. Many investors blame Ken for buying Golden West at the top of the market, and that was a tough thing to get around.” Fitzsimmons rates the bank “hold.”
By Jonathan Stempel
(Editing by Derek Caney and Dave Zimmerman)