"No single precipitating event," but rather "a series of previously disclosed disappointments" doomed Wachovia Corp. CEO G. Kennedy Thompson, the bank said in deposing its leader after seven years this morning. Statement here. Wachovia, based in Charlotte, is the Philadelphia area's dominant bank.
What kind of disappointments? Billions in capital dilution, a cut in shareholder dividends, a first-quarter loss that had to be restated downward. The same kind of stuff that brought down Citigroup CEO Charles O. Prince Jr. last fall. Bloomberg story here.
Update: Washington Mutual CEO Kerry Killinger, architect of the troubled Seattle mortgage lender's nationwide expansion, is out as chairman today, which is what happened to Thompson last month, before the board took the CEO job, too. Story here.
Wachovia's 2006 purchase of Golden West Financial Corp. for $24 billion has been a special drag on Thompson's rep. The deal came just in time to make Wachovia the holder of a large and costly portfolio of California mortgages that aren't being paid.
Call it bad timing; but it's exactly the kind of merger outcome Thompson was put in his job to prevent. He replaced the bank's ousted founder, Edward Crutchfield, after Crutchfield's costly 1998 acquisitions of Philadelphia's CoreStates Financial Corp. and subprime lender The Money Store ran off the financial rails.
Crutchfield paid a never-since-equaled 6 times book value for CoreStates, and promised he could boost profits 20 percent while cutting costs 45 percent in 18 months. He couldn't. Money Store was a complete loss.
Thompson changed the bank's name, conducted his early acquisitions (notably the deal with Wachovia Bank) carefully, deliberately, and affordably, walked away from what he considered overpriced deals (including an offer to buy Wilmington's MBNA Corp., which went to Wachovia archrival Bank of America Corp.), yet still managed to grow the bank rapidly.
During the early stages of the credit crisis that started last year, Wachovia even joined BofA, Citi and JPMorgan as a junior partner in negotiations with the Federal Reserve on ways to save the economy.
But, like Crutchfield, Thompson finally went a deal too far, at the wrong point in a cycle.
Thompson's place has been taken, for now, by Charlotte investor Lanty Smith. The search committee includes Philadelphia's Joseph Neubauer, head of Aramark Corp.; Mackey McDonald, who moved VF Corp. from Reading to Greensboro when he ran it in the 1990s; and Robert A. Ingram, who ran Glaxo Wellcome's Carolina-based US operations prior to its merger with Philadelphia's SmithKline.
The stock initially traded down on news of Thompson's ouster, raising the question: Is Wachovia necessary? Can the company be profitably bought, or broken up?