Wachovia sets timing for job cuts

Layoffs announced last week in Wachovia Corp.'s mortgage business will take place over the next two to three months, a spokeswoman said Thursday.

As part of an effort to trim annual expenses by $1.5 billion, the Charlotte bank last week said it was eliminating 6,350 jobs companywide, including 4,400 in its troubled mortgage area. It has disclosed few details about the cuts.

The mortgage unit has been reeling from massive loan losses in the Pick-A-Payment mortgage portfolio inherited in Wachovia's 2006 Golden West Financial Corp. acquisition. These losses are expected to sap the overall company's profits into next year and beyond.

The layoffs will trim about 38 percent of the mortgage unit's 11,500 employees. Former Golden West workers are expecting to be hard hit. They are concentrated in tough California housing markets and in a discontinued area that made loans through outside brokers. As of January, about 85 percent of the mortgage unit's workforce had Golden West roots, the bank said.

With the latest cuts, Wachovia will have eliminated about 7,500 mortgage jobs, including attrition, since the deal was closed. Those cuts have affected Golden West and Wachovia employees.

Golden West, which also gave Wachovia coveted California branches, had about 10,500 employees at the time of the acquisition.

The Oakland, Calif.-based thrift had a reputation for maintaining a sterling loan portfolio that had fared well even in major economic downturns. But data released by Wachovia last week shows that the thrift's Pick-A-Payment loans became riskier in 2005 and 2006 as the housing market escalated.

In this period, Golden West was making a higher percentage of loans to borrowers with lower-tier credit scores. Wachovia is in the midst of leadership changes in the mortgage unit, but it has disclosed few details.

Two top executives who joined the company from Golden West, Rich Fikani and Tim Wilson, will no longer report to mortgage head David Pope. Their future role is unclear.

The mortgage business is returning to the more traditional approach Wachovia maintained before Golden West. It has discontinued making Pick-A-Payment loans, which gave customers four monthly payment options. The bank is also assigning about 1,000 employees the task of contacting Pick-A-Payment customers about refinancing into traditional home loans.

The job cuts come as new mortgage loan demand is falling off industrywide. Wachovia's total mortgage originations dropped to $11.8 billion in the second quarter, down 26 percent from the same period last year. The bank said an increase in traditional loans was offset by fewer Pick-A-Payment loans.

Wachovia's recovery from existing bad loans will be long and expensive, executives said last week. The bank said it now expects cumulative losses of 12 percent over the lifetime of the $122 billion Pick-A-Payment portfolio, with most of the damage coming in the next three years.

The bank's models have it setting aside $8.7 billion in 2008 to cover Pick-A-Payment losses, followed by another $5.6 billion in 2009. The calculations are based on housing declines bottoming out in 2010.

In a recent research note, Edward Jones analyst Tom Kersting said mortgage-related losses remain an ongoing threat to Wachovia's profits.

“We are concerned,” he wrote, “that losses may accelerate in riskier states such as California and Florida, and will also be higher than previously expected in Wachovia's core Southeastern banking franchise, leading to a more prolonged period of depressed earnings.”