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	May. 6th, 2008 @ 06:15 pm

Wachovia hit by policies revaluation

By Ben White in New York

Published: May 6 2008 18:57 | Last updated: May 6 2008 18:57

Wachovia, the fourth-largest US bank by assets, nearly doubled the size of its first-quarter loss to $708m on Tuesday after adding $315m in writedowns on the value of life assurance policies it takes out on its own employees.

The new writedown came after the bank, hit by mortgage losses and rising credit costs, reported a $393m first-quarter loss last month and revealed plans to raise $7bn in new capital. The lender also agreed last month to pay up to $144m to settle claims that it failed to stop abusive telemarketing practices.
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Wachovia shares were little changed in midday trade at $30.07 after the bank said it could record gains in the value of its insurance portfolio in future quarters.

In a filing with the Securities and Exchange Commission, Wachovia said it had “reviewed information” regarding stable value agreements totalling $360m provided by a third-party guarantor covering three related contracts within Wachovia’s bank-owned life assurance portfolio.

The bank said the review led to valuation losses of $315m on the life assurance portfolio, which in turn increased the first-quarter loss to $708m, or 36 cents a share. The change is not technically a restatement of earnings because Wachovia has not yet filed its full first-quarter report with the SEC.

Bank-owned life assurance portfolios consist of policies that banks take out on their own employees. The policies pay off for companies when employees die, even if they are no longer with the company. They are also intended to provide tax benefits.

The policies have been criticised by shareholder groups and some members of Congress for artificially padding profits and because employees often do not know about, or benefit from, the coverage.

Wachovia declined to comment beyond the SEC filing. The bank has said it uses benefits it derives from its bank-owned life assurance portfolio to help defray the costs of other benefits for employees.

The writedown was the latest in a line of problems for Wachovia which, along with other big commercial banks, is struggling as consumers fall behind on mortgage, credit card, home equity, automotive and other loans. The bank said last week it might take an after-tax writedown of $800m to $1bn based on past leasing transactions in light of a court ruling.

Shares in Wachovia are down more than 50 per cent from early 2006. Many of the bank’s mortgage problems are the result of its 2005 acquisition of Golden West Financial, the California lender, for $26bn. Golden West was a leader in adjustable rate loans, which have been hit hard in the mortgage crisis.

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