Wachovia workers under investigation
Published: Fri, Feb. 29, 2008 12:30AM
Modified Fri, Feb. 29, 2008 03:01AM
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closeRALEIGH -- Wachovia said Thursday that the Department of Justice is investigating two company employees that it did not identify for possible misconduct related to competitive bids in the municipal derivative markets.
The bank, based in Charlotte, said it expects to set aside more money in the first half of 2008 to cover troubled mortgage loans.
Wachovia said the Department of Justice and Securities and Exchange Commission have advised the bank that they think some of the company's employees engaged in "improper conduct" in connection with certain competitively bid transactions.
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The company disclosed the investigation in its annual report filed with the SEC. According to the filing, Wachovia was notified that the two employees, who are on administrative leave, were under investigation in November.
Wachovia said that the Justice Department and SEC began requesting information regarding competitive bids from several financial institutions, including Wachovia, in November 2006.
Wachovia said it has received subpoenas from the Justice Department and SEC for documents and information from its municipal derivatives group.
Also in the filing, Wachovia said it expects to set aside more money for bad loans.
The bank took about $3.2 billion in write-downs in the second half of 2007 because of the falling value of certain investments as a housing slump and weakening credit markets ensued. Those investments included collateralized debt obligations, a complex security often backed by subprime mortgage loans, or loans given to customers with poor credit histories.
Citing "rapidly changing conditions in the housing markets," the bank said Thursday that its expense for bad loans will likely be more than 0.75 percent of average net loans in the first half of the year. It had previously estimated an expense below this level.
"The fair values of these investments in future periods and their effect on our financial results will depend on future market developments and assumptions," the filing said.
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