Wachovia CEO Ken Thompson made the PR rounds earlier today, granting a wide-ranging interview to the Associated Press in which the chief executive of the fourth largest bank in the U.S. affirmed his company's earlier mortgage-realted loss estimates. Saying he does not expect a recession to result from the housing correction, Thompson was liberal with blame for the problems now facing the mortgage banking industry:
"There's plenty of blame to go around," Thompson said. "I think lenders made loans to people who should have not received loans. I think that brokers were scrambling to put business on the books that should not have been done." And in the capital markets, where many of the mortgages were packaged and sold as investments, "I think the rating agencies did a very poor job in rating those mortgage-backed securities," Thompson said.
Of course, none of that really addresses why lenders were busy making loans to people who shouldn't have received them in the first place, regardless of what brokers and rating agencies were or weren't doing. Thompson told the AP that Wachovia has limited exposure to the CDO market at roughly $700 million, compared to $43 billion at New York-based Citigroup Inc. -- not that losses haven't been a problem. The bank said in mid-December it would double its loss reserves to $1 billion, a number the Wachovia chief characterized as "close to right." Nonetheless, Thompson comes off in many ways sounding similar to Countrywide chief Angelo Mozilo:
Thompson admitted Thursday that the timing of the $24 billion Golden West deal "was not the best, because the mortgage market has been more troubled I think that anyone could have projected at the time we did the deal." ... But those problems, Thompson said, will shift more of the mortgage industry toward large banks with healthy balance sheets, positioning Wachovia to gain market share and post earnings increases in the business late in 2008 and into 2009. "We believe that 2008 will be a much better year for us than 2007, and we think the market will recognize that as we go more and more through the year," he said.
Countrywide's Mozilo hasn't gone as cheery as predicting a "much better year" in 2008 -- in fact, his predictions for the coming year have been far more dour -- but Thompson's survivors-win-market-share mantra hits a familiar note. Disclosure: The author owns no positions in Wachovia; various option contracts on CFC are held.