Wachovia, one of the US’ biggest banks, said on Monday that its chief executive Ken Thompson is leaving the bank as its board of directors seeks to stem hefty losses tied to troubled mortgage loans.
The Charlotte, North Carolina-based bank said Thompson was departing with immediate effect after eight years as CEO at the request of the company’s board. It said new leadership was needed to revitalize the bank.
“Wachovia announced today that its current chairman, Lanty Smith, has been appointed interim chief executive officer, succeeding Ken Thompson, who is retiring at the request of the board,” the bank said.
Smith said “no single precipitating event” had caused Thompson’s ouster, but that “a series of previously disclosed disappointments and setbacks” had hurt Wachovia’s finances.
The bank has formed a special committee to recruit a permanent successor to Thompson who spent over three decades climbing the corporate ladder at Wachovia.
Like other US banks, Wachovia has seen its profits squeezed dramatically by the housing market slump and mortgage-related losses. Such losses have roiled domestic banks and big foreign banks that snapped up US mortgage securities during the housing boom.
“Thompson leaves behind a company struggling to keep its credit losses down and its capital position strong. We suspect Monday’s announcement is signaling a very bad second quarter for Wachovia,” said Jaime Peters, an industry analyst at Morningstar.
Wachovia’s earnings declined late last year and it announced a first-quarter loss of US$393 million, compared with a profit of US$2.3 billion in the same period last year.
Some analysts said Wachovia and its rivals will struggle to turn their finances around during the second quarter as the housing market remains stuck in a rut and the wider US economy is also struggling for momentum.
As mortgage losses have increased, Wachovia and its competitors have sought fresh capital to bolster their balance sheets.
Wachovia raised US$8.05 billion in April through a special stock offering and other banks have won capital injections from investors, including state-run investment firms based in China and Singapore.
Smith said the mortgage turmoil was “unprecedented,” but he said Wachovia would rebound.
“Despite continued hurdles, we have confidence in our strong liquidity, good capital position and solid business model,” he said.
Wachovia also announced that Ben Jenkins, a vice chairman and president of its general bank division, had been appointed as an interim chief operating officer. It said no other management changes were presently planned.
“The management shakeup comes in the wake of a generally bleak 2007 and slumbersome start to fiscal 2008,” said Andrea Kramer, an analyst at Schaeffer’s.
Wachovia is the fourth-largest US bank by assets and has a market worth of around US$46.6 billion.
Washington Mutual (WaMu) also announced a management overhaul on Monday, saying it was splitting the roles of its chairman of the board and CEO after posting a first quarter loss of US$1.14 billion.
WaMu said Kerry Killinger would still be CEO, but would no longer be board chairman, a post that will be assumed by independent director Stephen Frank.
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