Real Estate Lender Implosion

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Wachovia shares slump on Prudential sale report



NEW YORK, June 30 (Reuters) - Wachovia Corp (WB) shares fell as much as 9 percent on Monday after the New York Post reported that Prudential Financial Inc (PRU.N: Quote, Profile, Research) could force the bank to buy its stake in a brokerage joint venture.

The report was a latest blow to Wachovia, which was the biggest decliner among large banks, and is trading at a 16-1/2-year low.

The fourth-largest U.S. bank has already been throttled by concern that it might have to again cut its dividend and potentially raise more capital after raising $8.05 billion in April.

Many of Wachovia's problems stem from losses on mortgages taken on through its October 2006, $24.2 billion buyout of Golden West Financial Corp.

Wachovia said on Monday it was putting an end to adjustable-rate mortgages that let borrowers pay less than the interest due, a type of so-called "option ARMs" that caused amounts owed on some mortgages to rise even as home prices fell. In addition, it would waive all prepayment fees associated with such mortgages.

The New York Post said that Prudential, starting on Tuesday, could force Wachovia to buy the insurer's 23 percent stake in the Wachovia Securities partnership, which it said some analysts value at around $5 billion.

"Another headache the financials don't need today is a media report that Wachovia might be forced to purchase over 20 percent stake in a partnership from Prudential," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. "That report has led to selling in the Wachovia shares and the buying of Wachovia puts."

According to option analytics firm Trade Alert, roughly 481,000 puts, which give the right to sell the stock, compared to 62,000 calls, changed hands in Wachovia, 5 times the normal volume.

Wachovia spokeswoman Christy Phillips-Brown said the bank was declining to comment "on what Prudential may or may not do," adding that the underlying brokerage business was strong.

Phillips-Brown also said that even if Prudential does exercise the option "it wouldn't take effect for another year."

Prudential spokesman Bob DeFillippo also declined comment on whether the insurer would exercise its option to force Wachovia to buy its roughly 23 percent stake in the Wachovia Securities joint venture.

He noted that Prudential has an outstanding option to boost its investment in Wachovia Securities to make up for the dilution -- from an initial 38 percent -- that occurred when the wealth management unit bought rival brokerage A.G. Edwards.

"Everything we've ever said about the Wachovia venture is that we're pleased with it," he said, adding that even if Prudential exercised the right to make Wachovia buy back the stake, the bank would have a year to come up with a stock or cash payment.

Wachovia shares closed down 4.3 percent at $15.53 after going as low as $14.70 earlier Monday. So far this year, the shares are down more than 60 percent.

http://uk.reuters.com/article/newsOne/idUKN3043826320080630