I don’t even understand it, CEO Bob Steel said $10 Billion of the $XXX billion is problematic. So Wachovia is digressing on bad news from Wall Street. They have a fundamentally sound company and they are working to solve the issues with those loans.
Transcript from interview on Mad Money with Jim Cramer:
CRAMER: Wachovia has a reputation for good service and has a reputation, and I’m not blowing smoke, I’m looking at the positive growth in this environment. Mr. STEEL: Sure.
CRAMER: Tell people why deposits matter and now Lehman didn’t have deposits, nd AIG may have had deposits, but you have a core asset.
Mr. STEEL: Jim, there’s a distinction that is with a difference between depository institutions and financial institutions that are nondepository institutions. We take deposits. We have $300 billion of deposits to fund approximately $500 billion of loans. These deposits we take very seriously. We have 5,000 different financial services offices where we work with consumers, develop them and basically do our very best to give the best service possible so that–so that people–customers will come in and trust us with their deposits. It’s a critical part of our business model.
CRAMER: Bob, how can we determine–you’ve got a lot of different–what I think we, in retrospect, are kinds of loans we don’t really like, where you don’t have to pay a lot of money that kind of gave your old bank, before you got there, gave people a lot of options. The people who selected options where they don’t have to put up much money at all, are those the loans that are going bad, 40, 50, is it 60 percent of those loans? Is it from 2005 or 2006, are they going? Give us a sense of how many bad loans there really are of the three hundred and sixty some thousand?
Mr. STEEL: Well, let’s look at it this way, Jim. First of all, let’s recognize that Wachovia has a loan portfolio of about $500 billion. A hundred and twenty-five billion are the option adjustable rate mortgages that came from Golden West.
CRAMER: Bob, that’s a lot.
Mr. STEEL: It is. And that’s why we’re focused on it. And as you suggested, we’ve taken it out of the portfolio and have it in a separate position to focus on with the right people and the right tools. We should be the best person at the world at understanding this type of asset and basically doing the very best to extract the value of that can be extracted. Now, so far, things are going well, and we’re also doing what we can to make a group of these loans adjustable for FHA or conforming status. And so we can choose to take write-offs, we can choose to give people relief on principal. We have lots of flexibility to figure out how to do this. If we just owned securities, we would have two choices: hold or sell. We have lots of choices. So, basically, we’re going to spend a lot of time. But let me just focus on the rest of the portfolio.
CRAMER: Sure.
Mr. STEEL: OK? We have $150 billion of consumer loans. Roughly a third are legacy Wachovia mortgages. They’re performing great. They’re to guys like you and me that walk into branches that we know. The second group, Jim, is second lien, where our business is performing better than anybody else’s.
CRAMER: Really?
Mr. STEEL: Yes.
CRAMER: These home equity loans?
Mr. STEEL: Yes. Whether there are people–again, people that came into the branches and know us well. And the last is our auto book, which is performing very well. That’s 90 percent of our consumer loans, which are 150 billion. That leads us to a little over 200 billion of commercial loans.
CRAMER: Right. Now, that’s supposed to be the next leg. Now, when are…
Mr. STEEL: Let me explain to you. OK. We have 40 of that 215 that you should ask me about. Of that 40, 40 is real estate. Of the 40 real estate, 40 billion, 30 billion are income producing, which are doing fine.
CRAMER: OK.
Mr. STEEL: And 10 billion is residential related, and they’re problematic. Of that 10 billion, 5 billion is real estate, raw land, and the rest are condominium types. And those are quite challenging. But think of what I just did. I just walked you through the portfolio. Ten billion out of over 500 billion are the problematic aspects. So if you look at the 150 billion of consumer, if you look at 216 of commercial X, the unattractive real estate, we have a lot of very good loans that are doing well, and we’re going to focus like crazy, as I said, on the $125 billion in Golden West.