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Wachovia Raid
July 17, 2008
In recent weeks, Wachovia has been hard hit. Massive mortgage losses, the termination of a profitable mortgage loan program and now the government have added to their woes. Today Wachovia was raided by authorities from several states. Not over their mortgage loans, but over their auction capital division. Per the NY times:
Auction-rate securities are normally resold every week or so, allowing investors to redeem their cash if they want. But the market for these securities came to a virtual halt in mid-February, leaving many people and institutions frozen out.
The bad news just doesn't stop for Wachovia. The new CEO has significant challenges ahead of him as the bank attempts to find it's footing. Wachovia has yet to put out a statement about todays raid, however some industry analyst were not surprised by the action
The raid was caused by investors who say they were mislead about the risks of the auction market and they hold Wachovia accountable for not disclosing this. These investors have lost millions of dollars since late February when the auction market collapsed. Several other large banks and primary dealers have lost huge sums of money as well because of the recent collapse of this once profitable market. The bond yield spreads were sky high earlier this year and the market remains in disarray. As the dollar has somewhat rebounded recently, some hope the auction market will improve in the short term. With continued foreclosures, Wachovia faces a future with many hazards.
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