Charlotte, NCInvestors, and current and former employees holding Wachovia retirement savings plans and 401(k) plans (Plan) will not be happy with the news this morning that the 4th largest bank in the country has posted a huge loss for the first quarter, and is attempting to raise $7 billion in capital.
The anger amongst investors and savers would center on the fact that Wachovia was expected to post a profit this quarter, after suffering a dismal fourth quarter last year in the face of the emerging credit crisis.
However, it appears that those charged with the responsibility of forecasting performance were well off the mark, which may result in untimely losses for retirement savers and investors, and could put Wachovia in breach of its fiduciary duty under the Employee Retirement Income Security Act (ERISA, 1974 as amended). Under the ERISA statutes, managers and administrators of retirement and 401(k) plans have a fiduciary duty to manage the investments and plans in a responsible manner with the best interests of the investor, and the 401(k) plan holder at heart.
In the event that Plan managers and administrators may have invested employee 401(k) plans into Wachovia stock when it was imprudent to do so, it may constitute an alleged breach of Wachovia's fiduciary duties under the terms and conditions of ERISA.
After setting aside $1.5 billion for credit losses in the fourth quarter of 2007—a quarter that proved dismal for everybody—Wachovia set aside a war chest amounting to $2.83 billion for credit losses for the first quarter of 2008. That's nearly double the figure for the fourth quarter of last year.
Even so, credit losses soared beyond everyone's expectations, and the bank finished the first quarter with a loss. That was a surprise in that analysts on average, according to a report in this morning's New York Times, expected a profit of 48 cents per share on revenue of $8.37 billion.
In reality, the net loss to common stockholders was $393 million, or 20 cents per share. A year ago the bank posted a first-quarter profit of $2.3 billion, or $1.20 per share.
Wachovia said this morning that it would have to raise $7 billion in new capital via a public offering of both common, and convertible preferred stock. Part of the difficulties Wachovia now faces, was borne from the bank's acquisition of adjustable-rate mortgage lender Golden West Financial Corporation in 2006, a takeover that happened at the height of the housing boom.
Wachovia Chief Executive Ken Thompson said in the New York Times this morning that the "precipitous decline in housing market conditions and unprecedented changes in consumer behavior" fuelled the decline, and the less-than stellar results.
While investors will have taken a hit in the pocketbook as the result of this latest decline in stock value of Wachovia, retirement savers and holders of Wachovia 401(k) plans will have just taken another hit in their retirement nest egg.
It behooves, therefore, the holder of a Wachovia 401(k) plan to determine if Wachovia Plan administrators and managers invested Plan assets in Wachovia stock, at a time when it may have been imprudent to do so. In the event that Wachovia plan managers and administrators might have allegedly breached their fiduciary duties under ERISA statutes, you may have a case to pursue compensation for your loss.