Wachovia was ahead of the curve in shares sell-off

Wachovia Corp. said this week that its new chief executive, an alum of the U.S. Treasury, was not involved in the bank's decision this summer to sell its preferred shares in Fannie Mae and Freddie Mac.

CEO Bob Steel said Tuesday that the bank had sold $509 million worth of Fannie and Freddie preferred shares, liquidating the portfolio as of July 21. The bank took a loss of $171 million by doing so, but eliminated its exposure to the problematic shares. Bloomberg News estimates that Wachovia saved $300 million by doing so; the shares have lost almost all their value since the Treasury said Sunday that it is taking over the two federally chartered mortgage giants.

Later in the week, Wachovia clarified that it had decided to liquidate the Fannie and Freddie portfolio on June 2 – “well before Mr. Steel's July 9 arrival,” said spokeswoman Christy Phillips-Brown. That process started immediately and was completed July 21. Wachovia also decided on June 2 to liquidate all of its perpetual preferred securities, not just those in Fannie and Freddie, she said.

“Mr. Steel had nothing to do with the decision to liquidate these securities and he had nothing to do with the timing or manner in which that decision was executed by Wachovia,” said Phillips-Brown.

Before Steel came to Wachovia, he was the Treasury's undersecretary of domestic finance. He has said that, while at the Treasury, he recused himself from matters involving Wachovia when he began discussing the CEO job.

On Wednesday, Bank of America's Brian Moynihan said the Charlotte bank would take a loss on its preferred shares in Fannie and Freddie, which he quantified as “less than half a billion.” Other banks have also been clarifying their exposure to Fannie and Freddie since Sunday.