Wachovia Sacks CEO on Write-downs

Wachovia is America’s fourth largest bank, and as a result, it was up to its neck in mortgages and related securities that went sour. The company posted its first quarterly loss since 2001 in the last quarter, and the bank has lost half its market value in the last year. As a result, the board of directors has fired CEO Kennedy Thompson and named Chairman Lanty Smith as interim CEO. A few more heads need to roll, though.

Of course, Mr. Thompson didn’t do a very good job of late, or the bank would be worth more and the loss would have been a profit – or at very least, much smaller. The company is trying to pin it all on him by claiming everything from here on is on the up and up. Mr. Smith said in a company statement, “Wachovia is a strong institution and well positioned even in the face of the unprecedented conditions in the financial services industry. The board is confident that we are putting in place the right interim leadership to move the company forward, and no other senior management changes are currently contemplated.” In other words, it’s all Mr. Thompson’s fault.

Gerard Cassidy, an RBC Capital Markets analyst, said in a Bloomberg TV interview, “This company was run under Ken Thompson without very good controls.” As CEO, he can run the company any way his board will let him. Since the bank was making money every quarter for about 7 years, no one cared to ask if the right controls were in place. “If it ain’t broke, don’t over-see it,” is Wall Street’s mantra.

However, the board of directors exists largely to ensure that shareholders’ interests are protected and that usually happens by making sure the CEO and his team members are running the business properly. And when he isn’t, the board has to step in and give direction. If there is evidence at Wachovia of this occurring, it hasn’t hit the papers.

According to TheStreet.com, much of Wachovia’s troubles stem from the purchase of Golden West Financial, “a California-based mortgage lender best known for originating option-adjustable rate mortgages, in which borrowers can choose the size of the payment they make each month.” This acquisition was approved by the 2006 board of directors. Anyone think Mr. Thompson bears sole responsibility?

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