Here's some food for HW readers' thought. The below graph is from the investor presentation delivered by the bank on Monday morning, and it's intended to show how the bank's relative credit risk is better than industry averages.
Two things should stand out when you see a graph like this: first, remember that the bank is choosing here to look only at severe delinquencies of 90+ days. The graph may look very different if we're looking at all delinquencies, or looking just at foreclosures.
Secondly, and much more importantly: if Wachovia, as it has strongly suggested for months, is doing a better than average job managing credit risk in its residential mortgage portfolio, and they're now having to raise $7 billion and cut their dividend in a move to preserve capital -- what does that say about other firms?
As a side note, it's worth remembering that nearly every major player in the mortgage market has, for a while now, been pumping out a graph or two each earnings season intended to show how much better their credit risk is than industry averages. Keep in mind that if everyone were better than average, as most are now claiming, we'd have a very different average.
We're not saying that Wachovia is playing with numbers here; what we're saying is that you can't assess credit risk on one dimension.