Wachovia drops net exposure to leveraged finance to $3.8 billion, will stop wholesale mortgage origination

By Jennifer Lanning Drey

Portland, Ore., July 22 - Wachovia Corp. ended the second quarter with net exposure to leveraged finance of $3.8 billion, which included $574 million of unfunded commitments and $600 million of new business, Thomas J. Wurtz, chief financial officer of Wachovia, reported during a Tuesday conference call.

The net exposure figure was down from $8.2 billion at the end of the first quarter.

During the second quarter, corporate and investment bank revenues increased 111% from the prior quarter as Wachovia reduced its net market disruption-related losses.

Additionally, Wurtz said investment bank origination fees were up 16%, reflecting strong performance in global rates, leveraged finance and equities.

At the same time, Wachovia reported a firm-wide second-quarter net loss of $8.9 billion, compared with net earnings of $2.34 billion in the second quarter of 2007.

"Our reported results today are clearly a disappointing performance for which we take responsibility. We're serious about getting on top of these issues quickly, and we believe we have a good grasp on the challenges facing the economy, the industry and Wachovia," Robert Steel, chief executive officer of Wachovia, said during the call.

Wachovia also announced Tuesday that it plans to immediately exit the general bank's wholesale mortgage origination channel.

Additionally, Wachovia will look to raise capital through methods including a dividend reduction, expense reduction, risk-reduction strategies and the possible sale of non-core assets, Steel said.

The company is also taking actions to reduce credit-only commercial borrowers, according to Wachovia's earnings release.

"We at Wachovia understand our issues and challenges. We are already addressing them and we will be taking further actions," Steel said.

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