Western expansion boosts Wachovia second quarter profits | VailDaily.com
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Western expansion boosts Wachovia second quarter profits

CHARLOTTE, N.C. – Profiting from westward expansion, Wachovia Corp. reported a 14 percent rise in second-quarter earnings on Thursday, but Wall Street expressed its skepticism about the company’s growth strategy by driving shares lower.The nation’s fourth-largest bank saw double-digit revenue growth in the quarter as it absorbed auto lender Westcorp, a 19-branch southern California operation it bought for $3.4 billion earlier this year.But it was Wachovia’s bigger West Coast purchase – the $25.5 billion deal to buy Oakland, Calif.-based thrift Golden West Financial Corp. that was announced in May – that seemed to be driving the negative response to second-quarter earnings.Wachovia’s share price dropped more than 6 percent on the day the deal was announced; it declined again Thursday as Golden West announced it had missed the analysts’ target for its second-quarter earnings.Shares of Golden West were down 61 cents, or 0.8 percent, at $74.19 in afternoon trading on the New York Stock Exchange. Wachovia shares dipped 73 cents, or 1.3 percent, to $54.20 on the NYSE.Wachovia, which has a strong consumer banking presence in the South and Northeast, has been focused on Western expansion in recent quarters as the company tries to extend its footprint nationwide. Golden West has 285 branches in 10 Western states.On a conference call with analysts, Wachovia Chairman and CEO Ken Thompson said he remains optimistic about the Golden West acquisition, saying the companies’ integration has gone smoothly and that they share similar cultures.”I continue to feel even better today than I did on the day we announced this transaction,” he said.Wachovia said it earned $1.89 billion, or $1.17 per share, in the April-June period compared to $1.65 billion, or $1.04 per share, a year earlier.Excluding merger-related and restructuring costs, earnings rose to $1.9 billion, or $1.18 per share, compared to $1.7 billion, or $1.07 per share, last year.Revenue climbed to $7.26 billion with the March addition of Westcorp from $6.39 billion a year earlier.Analysts polled by Thomson Financial were looking for earnings of $1.15 per share on sales of $7.13 billion.At the same time Wachovia made its report, Golden West reported second-quarter net income of $390.4 million, or $1.25 a share. Analysts had been looking for earnings of $1.29 a share.Pressed by analyst Dick Bove of Punk, Ziegal & Co. on what it will take to raise Wachovia’s stock price, Thompson said: “We’ve got to show a track record for a little while (with Golden West) to make people feel better. I suspect we’ll do that. We’ve taken a hit as a result of the acquisition and I suspect it will come back. … You can’t manage (price to earnings) ratios other than through performance.”Thompson said the company opened 23 branches in the quarter and completed planning for a third-quarter launch of its new credit card business. Thompson decided last year that he wanted Wachovia back in the credit card business, which it exited in 2000.Wachovia saw particularly strong results from loans, including a 39 percent increase in average consumer loans that the company said was driven by higher real estate-secured loans and the Westcorp acquisition, which added $14 billion to Wachovia’s portfolio. Average commercial loans were up 12 percent.Even with the growth in loans, Wachovia said its credit quality remained strong, with nonperforming assets at a record low 0.25 percent.Fees and other income were up 20 percent as the company said capital markets offered stronger returns and the asset management and investment banking fees rose.The one division that saw a slide was wealth management, where earnings declined 9 percent. The company blamed the drop on expenses related to implementation of a new investment platform that outpaced revenue growth.Net income for the first six months of the year was $3.6 billion, or $2.26 a share, up from $3.27 billion, or $2.05 a share, in 2005.—On the Net:www.wachovia.com


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