Wachovia ends first quarter with $6.5 billion unfunded leveraged loan commitments, plans to raise capital

By Jennifer Lanning Drey

Portland, Ore., April 14 - Wachovia Corp. ended the first quarter with net exposure to leveraged finance of $8.2 billion, which included $6.5 billion of unfunded loan commitments, Thomas J. Wurtz, chief financial officer of Wachovia, reported Monday during a company conference call.

Wachovia's first-quarter net valuation losses in leveraged finance totaled $309 million. The figure includes all hedges and assumes 100% funding of current unfunded commitments.

Not including hedges, market-related losses on unfunded leveraged finance positions totaled $729 million.

"We continue to remain exposed to market dislocations and the impact that has on the carrying value of our securities, but we've made very proactive moves during the quarter to substantially reduce our exposure across significant asset classes," Wurtz said.

Wachovia reported a first-quarter net loss of $350 million, compared with earnings of $2.3 billion in the same period of 2007.

During the quarter, strength in Wachovia's general bank operations, capital management and wealth management was overwhelmed by credit costs and continued market disruption losses, Wurtz said.

Wachovia posted $2.0 billion of market disruption-related losses for the first quarter.

Capital raise, dividend cut

Based on its first-quarter results and the projected economic conditions, Wachovia simultaneously announced plans Monday to raise capital in order to strengthen the bank's balance sheet and improve its Tier 1 capital ratio.

Wachovia plans to raise $7.0 billion through a common and convertible stock offering, reducing its dividend by 41% and updating its credit reserve modeling in response to the current and forecasted market environment. The actions are meant to address Wachovia's credit costs, dividend sustainability and ability to thrive should market conditions deteriorate more than currently forecast, Ken Thompson, chief executive officer of Wachovia, said during Monday's call.

"We've considered a broad array of alternatives and have concluded that these actions taken together protect the interest of our shareholders.

"I know these actions are not without cost, and I wish they were not necessary, but they are," Thompson said.

Wachovia will retain an additional $2.1 billion per year through the reduced dividend, which, combined with the $7.0 billion capital raise, is expected to lead to a Tier 1 capital ratio in excess of 8¾% by the end of 2009, Thompson said.

"We think we've taken a harsh view of what could happen going forward and we've raised more capital than what would be required to be very well capitalized and to handle losses that would even be higher than what we are forecasting," he said.

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