Thursday, June 19, 2008

Into Wachovia

Despite general reluctance to expose my investments, here goes. I jumped into Wachovia today. I might jump out tomorrow. Wachovia has no leadership now. Lanty Smith is a guy who likes fly fishing, has no banking experience, approved fast Eddie's Money Store acquisition and everything KThompson did, and he is the non-face of the company. This may be unprecedented---a major U.S. financial institution with no visible or respected leadership. But look at the name, Wachovia.

Wachovia was one of those companies that had for many years what Dick Fredericks coined a "fortress balance sheet". Its credit culture was exemplary. In 1988 I first met John Medlin, then CEO, and he could not have been nicer, no formalities required. We paired up at a conference check in and stayed together through dinner. He epitomized their credit culture and low key civility. He was succeeded by Bud Black, an ex-Marine who somehow felt compelled to compete with Hugh McColl. Within a few years Bud went from a person with a solid linebacker physique to that of an Amana refrigerator. He imploded or exploded on the job, so then came the merger with First Union, which had been a shareholder's nightmare forever under the aggressive, affable but clueless Ed Crutchfield. Ken Thompson came in, well respected and then went the way of megalomania, posing for portraits and squandering shareholder money. At this point, at this price($16 vs. $55 one year ago), can all of the old Wachovia's strengths, the legacy of Medlin and others, be absolutely non-existent. Isn't Thompson's massive damage now recognized. For at least a day, at this price, I'm betting that there is some legacy of responsibility at Wachovia, there must be I think!, and that no one will ever, in the near future, be as incompetent and arrogant as Thompson.

Now an 8% dividend yield, it will be cut again and then the stock should rally. It's a major franchise. It has limited investment banking revenue so a decline in that area is not material. The securities business mistakes in mortgage underwriting seem to be out there, so now all we need is a real CEO(see 6/3 eyesnotsold post). This company, as is or sold to HSBC, JPM, or Wells Fargo, must be at a floor now. That said, I'll be forced out fast with a loss if the trend goes bad. Looking for a floor...


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