Analysts have estimated Wachovia's net CMBS exposure at about $9 billion. They say the Charlotte, North Carolina-based bank could face a related fourth-quarter write-down as large as $1.5 billion. "CMBS-related write-downs may wipe out earnings" in the quarter, wrote Howard Mason, an analyst at Sanford C. Bernstein & Co, on December 6. He projects a $1.5 billion write-down for the securities, on top of $488 million in the third quarter. Meanwhile, Credit Suisse analysts led by Todd Hagerman wrote on December 20 that CMBS losses at Wachovia might reach $1 billion to $1.2 billion.The story goes on to note that a $1.5 billion write off in CMBS would likely put Wachovia into a more precarious position than rival Citigroup with respect to its tier-1 capital level. Unnamed industry sources interviewed by Reuters cited an example of an October CMBS deal involving Lightstone Group's purchase of the Extended Stay Hotels group from Blackstone Group LP, saying that Wachovia "struggled to find buyers." Contrasting with analyst concern over commercial mortgage exposure, CEO Ken Thompson recently said in an interview with the Associated Press that he expected 2008 to be a better year for the nation's fourth largest bank. Disclosure: The author owned no positions in WB at the time this post was published.
Is Wachovia's CMBS Exposure a Problem?
Wachovia's allegedly aggressive move into underwriting of commercial mortgages may end up costing it as the mortgage crisis extends its reach, according to a report published Friday by Reuters: