Wachovia board forces out CEO Ken Thompson

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CHARLOTTE — Less than a month after losing his chairman post, and more than two years after an ill-timed acquisition of California mortgage lender Golden West Financial Corp., Wachovia Corp. said Monday that board members have forced CEO Ken Thompson to retire from the nation's fourth-largest bank.

The board of the Charlotte-based bank said it asked Thompson to leave a few days ago, and acted Sunday to replace him on an interim basis with Chairman Lanty Smith. Smith replaced Thompson as chairman last month in a move the bank said "strengthens independent leadership" at the company.

But several analysts on Monday questioned if Thompson's ouster means more problems at Wachovia, a bank that has weathered a series of setbacks, including mounting losses and federal investigations, in recent months. They also speculated that Wachovia could be a takeover candidate, though the bank said Monday that it plans to remain independent.

"Golden West doesn't help," said Nancy Bush, an independent analyst with NAB Research LLC in Aiken, S.C. "Makes you wonder if there's more trouble or change ahead."

The high-priced deal gave Wachovia a means to expand aggressively into the booming home-lending business while also adding hundreds of branches on the West Coast. It also exposed the bank to collapsed housing markets and has led to billions in loan losses that continue to build.

Shares of the bank's stock have fallen 58 percent in the past year. Wachovia shares lost 40 cents, or 1.7 percent, to close at $23.40 after trading to a near 13-year low of $22.72 earlier in the day.

Thompson, 57, is the latest financial services executive to be ousted amid turmoil in the U.S. housing market.

He joins Stanley O'Neal at Merrill Lynch & Co. and Charles Prince at Citigroup Inc., who both presided over huge losses from exposure to bad mortgages, and were subsequently forced out from their perches at the top of Wall Street institutions.

Also Monday, Seattle-based Washington Mutual Inc. stripped Kerry Killinger of his chairman title, though he remains the chief executive officer at the nation's largest savings and loan.

"We will likely see more changes in top brass at institutions hit particularly hard by the subprime mortgage crisis," said Eva Weber, an analyst with Aite Group, a Boston-based financial services research firm. "As more losses are incurred, and boards of directors scrutinize decisions around mortgages, we will likely see shifts in management."

U.S. bank shares were also under pressure following a broad descent Monday in the European banking sector as well as ratings cuts in the United States.

Deutsche Bank analyst Mike Mayo warned Wachovia investors to guard against negative surprises, particularly when the bank reports its second quarter earnings next month.

"We continue to have a downward bias to our estimates and this move only heightens concerns about earnings and asset quality problems short-term," Mayo wrote in a note to clients on Monday.

On a conference call with reporters, Smith would not provide an outlook for second-quarter earnings, but he said Wachovia would continue to be impacted by loan losses, like its competitors.

Thompson joined predecessor First Union Corp. in 1976 after business school and quickly moved up the company's ranks under then CEO Ed Crutchfield. In 2000, Thompson was appointed chief executive, and won praise for the successful merger with then Winston-Salem-based Wachovia in 2001.

Thompson's dismissal comes after several withering months of criticism from shareholders.

In April, he faced calls to resign at the bank's annual shareholder meeting in April, following a first-quarter loss, a 41 percent cut to its dividend and a snowballing of missteps.

Wachovia said last month that it lost $707 million in the first quarter, nearly doubling the losses it reported earlier, after a review of its portfolio. And when the bank announced it would cut dividends, shareholders recalled that Thompson had promised earlier that that would not happen.

Many, including industry analysts, believed Thompson's credibility was seriously damaged when he said the bank's roughly $25 billion purchase of home lender Golden West, a deal he made at the height of the nation's housing market in 2006, was on solid footing.

Thompson later acknowledged the timing of the deal "was not the best," and Wachovia was forced to set aside $2.8 billion to cover losses from problem loans.

On Monday, Smith said Thompson's removal was "a step that was taken after very careful consideration," and one that was precipitated by no single event but rather a "series of previously disclosed setbacks."

"It's been our hope and expectation that Ken would serve for several more years," Smith said. "We certainly wanted Ken to succeed. This is earlier than any of us wanted or choose."

He said the move was designed to "re-energize" and "revitalize" the bank, while at the same time he emphasized the strength of the company's underlying businesses.

It also effectively puts all of Wachovia's staff functions under Smith, who also serves as chairman and CEO of Tippet Capital, a merchant banking firm in Raleigh, N.C.

The company's business lines — its general bank, wealth management, the corporate and investment bank and capital management — will report to Ben Jenkins. Currently the bank's vice chairman and president of its general bank, Jenkins will serve as Wachovia's interim chief operating officer.

Smith said there were no other senior management changes planned.

He said the board would consider internal and external candidates for the CEO post, but gave no timeframe for hiring a new chief executive. The search began immediately after Sunday's board meeting.

Thompson, who has spent his 32-year career at the bank, will not receive any incentive pay for the 2008 fiscal year, but according to a filing with the Securities and Exchange Commission, he will get a severance of $1.45 million and accelerated vesting of $7.25 million in restricted stock.

In a statement, Thompson said it had been an honor to lead the company.

"Together we achieved great successes and overcame tough challenges," he said. "I have complete confidence in the ability of 120,000 Wachovia employees to continue to take this company forward."

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Wachovia Corp.: http://www.wachovia.com

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