Magazine article American Banker

Timely Wachovia GSE Stock Sales Draw Attention

Magazine article American Banker

Timely Wachovia GSE Stock Sales Draw Attention

Article excerpt

Byline: Paul Davis and Harry Terris

Analysts are raising questions about Wachovia Corp.'s time line for shedding its preferred stock in Fannie Mae and Freddie Mac.

The sales were completed between Robert Steel's arrival as the Charlotte company's chief executive July 10 and the seizure of the government-sponsored enterprises Sept. 7.

Some have wondered whether Mr. Steel, who was Treasury Secretary Henry Paulson's right-hand man as undersecretary for domestic finance until July, had inside knowledge about the government's plans.

Wachovia completed its liquidation of $509 million of GSE preferred stock July 21 - just 11 days after Mr. Steel joined the company, according to materials filed with his presentation Tuesday at a Lehman Brothers conference.

Though Wachovia will take a $171 million pretax loss on the sale this quarter, few large banking companies completely shed their GSE holdings before the takeover. (E-Trade Financial Corp. said in a regulatory filing Tuesday that it liquidated a majority of its holdings in the GSEs in July.)

Wachovia said in its Lehman materials that the sales were part of an effort to reduce leverage on its balance sheet.

Christie Phillips-Brown, a Wachovia spokeswoman, said in a press release Wednesday that the decision to liquidate the securities was made June 2, just a day after the board ousted G. Kennedy Thompson as the CEO.

"Once the decision was made, we began to liquidate our portfolio," she said.

But Gary Townsend, the president and CEO of Hill-Townsend Capital LLC, said in an interview Wednesday that there is still room for investors to question the rationale for selling at a time when few, if any, banking companies were liquidating those holdings. "People will wonder exactly where the impetus came to sell it," Mr. Townsend said.

Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said that the timing is "a valid question, if nothing else to get their line of thinking. …

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