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Banking, finance, and taxes

Can Wachovia (WB) Weather An Auction-Rate Buy-Back?

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By Douglas A. McIntyre Updated Published

WbNow that Citigroup (C) and Merrill Lynch (MER) have announced that they will buy back auction-rate securities sold to their private clients, the question arises about how financial companies with weaker balance sheets will handle this. Merrill will purchase as much as $12 billion of the paper and Citi is taking in over $7 billion.

One of the hard-up banks which has a significant auction-rate exposure is Wachovia (WB). About two weeks ago, securities regulators from several U.S. states, investigating Wachovia Securities’ auction rate securities sales practices, went to the company’s St. Louis headquarters and requested its documents and records.

According to MarketWatch, "There are now about two dozen lawsuits pending against brokerages, and regulators in at least nine states are examining how investment firms marketed the securities."

Research firm Morgan Keegan recently said that Wachovia faces "increasing credit losses. The losses are due to the bank’s high concentration of option adjustable-rate mortgages and commercial real estate loans, which are likely to continue defaulting at an increasing rate."

If Wachovia is forced to buy-in $10 billion in auction-rate securities at the same time it has to book mortgage losses, Wall St should wonder whether the bank’s balance sheet can stretch to accomplish both?

Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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