Wachovia Corp. on Wednesday evening named U.S. Treasury Department official Robert Steel its new chief executive officer, effective immediately, ending a six-week search and easing some of the uncertainty surrounding the struggling Charlotte bank.
Interim CEO Lanty Smith, who led the search, will keep his chairman title. All business and staff units will report to Steel, who brings strong N.C. ties, Washington experience and a Wall Street pedigree to the post.
The appointment puts an outsider at the helm of a major Charlotte employer and civic institution that has historically promoted home-grown executives to the corner office. Steel replaces Ken Thompson, a company lifer who was ousted June 1 as Wachovia faced mounting losses from its troubled 2006 acquisition of mortgage specialist Golden West Financial.
From the start, the 56-year-old Durham native and former Goldman Sachs vice chairman will face an array of serious problems, from regulatory investigations to a second-quarter loss the bank said Wednesday could reach a staggering $2.8 billion.
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Analysts said Steel's appointment brings the bank Washington clout during a turbulent time for the financial industry and potentially offers investors a dose of good news before a miserable earnings report expected July 22. They said it was still uncertain, though, whether the new CEO means the bank can avoid a takeover by a rival.
In an interview, Steel, a Duke University alumnus, said his new job came together in a week to 10 days and that he hadn't been looking for the next thing. But by Wednesday night, he had resigned as undersecretary of the Treasury for domestic finance, traveled to Charlotte, and his wife, Gillian, was on her way.
“I'm all in,” he said, adding: “It's great to be back home.”
Asked about ongoing speculation that Wachovia could become a takeover target, Steel said he plans to build all of the company's businesses, focusing on the needs of investors, customers, employees and the community. “If we're good stewards of those responsibilities, we'll do just fine,” he said.
Smith, who has faced criticism for ousting Thompson without a permanent successor in place, reiterated the board's insistence the company has more value as an independent institution. “We felt that yesterday and feel that even stronger today,” he said.
The Wachovia board approved Steel's hiring unanimously on Wednesday and later announced the decision in a conference call for about 250 top leaders in the company. Smith, who has served with Steel on the Duke board of trustees, said the news was embraced enthusiastically, highlighting his local roots.
As Wachovia's search for a new CEO extended beyond a month, anxiety had increased for employees and shareholders over who would take charge at the nation's No. 4 bank by assets. Possible names had ranged from former Bank of America Corp. chief financial officer Al de Molina to insiders such as interim chief operating officer Ben Jenkins, who will stay on as vice chairman and head of Wachovia's retail bank.
A knowledgeable source had told the Observer earlier Wednesday that the search was nearing an end, and Steel's name emerged as a top candidate. The bank formally announced the new hire around 6:15 p.m.
Steel joined Goldman Sachs in 1976 and retired in 2004 after rising to vice chairman. He joined the Treasury Department in 2006, where he served under another Goldman alumnus, Treasury Secretary Henry Paulson. There Steel served as Paulson's principal adviser on domestic finance and led the department's activities involving the U.S. financial system and related economic matters.
In this post he played a key role in the Bush administration's ongoing efforts to calm roiled financial markets. He also found himself in an unusual position: a former investment banker in charge of tightening regulations on the banking industry. In March, along with Paulson, he unveiled a “Blueprint” for a new regulatory structure, including broader powers for the Federal Reserve. He also played a key role in the bailout of tottering investment bank Bear Stearns. Still, he has cautioned against too much government interference. “It is important to recognize that regulation alone can not protect us from market challenges,” he said in a speech last month.
In a statement, Paulson said Steel was a friend and colleague for more than 30 years. “He has served the President and the public with ingenuity and dedication during extraordinary times in our financial markets,” he said. “I know he will excel in his future endeavors.”
Steel brings to Wachovia a gold-plated resume that could help satisfy restless shareholders. But he doesn't have experience running a retail bank, Wachovia's forte.
The bank faces ongoing speculation that it could be a takeover candidate. Steel provides new stability, but his presence could stoke rumors of a possible tie-up with Goldman. Wachovia last month said it hired Goldman to analyze its troubled loan portfolio.
The bank's stock is down more than 60 percent this year and more than 40 percent since Thompson left. Wachovia shares closed Wednesday down 8 percent at $14.29.
Wachovia's troubles began building last summer, along with other banks, as the nation's mortgage meltdown spurred a global credit crunch. The bank's Golden West deal, however, left it floundering more than many of its peers.
Wachovia stripped Thompson, a UNC Chapel Hill alumnus and Rocky Mount native, of his chairman title in May and then asked him to retire last month as the bank's mortgage losses ballooned. The bank last week said it would stop making mortgage loans that have an option that can increase a customer's loan balance, a one-time Golden West staple.
Miami-based bank consultant Ken Thomas said an appointment from the public sector makes good sense. “The regulators are very tough right now,” said Thomas. “They're all watching very closely. Wouldn't it be nice to have somebody at the board level in Charlotte who speaks their language, the Beltway language?”
The bank needs a new leader who can acknowledge mistakes and spearhead a turnaround plan, Thomas said. He predicts that after a new CEO is announced, the bank will lay off more employees, close branches and seek capital from alternative firms, like a sovereign wealth fund or private equity firm.
Of Steel, he added: “That would be the best acquisition they made in some time.”
The installation of a new CEO probably signals Wachovia's intention to remain independent, said Bert Ely, a Virginia-based bank consultant. But with its stock trading at a third of the price it was a year ago, Wachovia is still an attractive takeover target. “A lot of it is going to depend on how the market reacts to” the new CEO, Ely said.
Wachovia said it expects to report on July 22 an after-tax loss available to common stockholders ranging between $2.6 billion and $2.8 billion. In addition, it expects an undetermined non-cash charge that will impact earnings but not hurt regulatory capital ratios.
Steel, who is chairman of the Duke board of trustees, plans to move to Charlotte with his wife. They currently reside in Connecticut and Washington with their three daughters, according to a Treasury Department bio.
In his first full day on the job, Steel will face a busy schedule today talking with analysts, reporters and employees. The bank will hold an event for employees at the Wachovia Atrium this morning.
Staff writer Stella M. Hopkins and Kevin G. Hall in the McClatchy Washington bureau contributed.