Wachovia Corp. (WB), in the headlines more often than not in the past year for its ill-timed acquisition of option ARM specialist Golden West Financial, saw its shares wobble Tuesday in pre-market trading after a team of analysts at Morgan Keegan and Co. took out the proverbial red pen to their estimates of the bank’s earnings for 2008. According to a report by MarketWatch, analysts lowered their full-year estimate for 2008 to 75 cents a share from $1.70 — a huge cut in expected earnings that was tied to concern over continued exposure to mortgages. Expected per-share earnings for 2009 were also trimmed, from $3 per share to $2.80, the analysts said. “We believe the risk to the downside remains significant in the near-term at Wachovia as the underlying trends in the option-ARM, $121 billion mortgage portfolio continue to worsen,” Patten wrote in a research note, according to MarketWatch. “A further dividend cut appears likely and capital adequacy questions remain despite management’s reassurances.” Concern over Wachovia’s “pick a pay” loans continues to draw analyst worry, as the bank has booked $3.5 billion in deferred interest as income tied to the loans — income that may never materialize as borrowers find themselves upside-down on their mortgages. Option ARMs generated $240 million in charge-offs during Q1 at Wachovia, by far the largest category of credit losses relative to other sectors. Non-performing assets in option ARMs alone rose to 3.55 percent, up from 2.31 percent just one quarter earlier. “We’re seeing in our portfolio the most significant declines and defaults activity in California,” Wachovia’s chief risk officer Don Truslow said on an investor conference call in mid-April, “and of course it’s the largest concentration for us in the pick a payment portfolio by far.” Wachovia shares were down more than 2 percent in pre-market trading Tuesday morning, but rebounded strongly in early trading on the New York Stock Exchange; shares had risen 1.6 percent to $19.20 when this story was published. Disclosure: The author was held no positions in WB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.