Tuesday, May 13, 2008
Wachovia's Big-Loan Executive Is Leaving
One of the most zealous commercial real-estate lenders during the industry's boom is losing its most aggressive deal maker.
Robert Verrone, known by the nickname "Large Loan" because of his hard-charging personality and proclivity for $50 million-plus mortgages at attractive terms, is expected to leave Wachovia Corp. within the next week, according to people familiar with the matter.
Robert 'Large Loan' Verrone, who helped to fuel the commercial real-estate boom, is leaving Wachovia.Mr. Verrone helped vault the Charlotte, N.C., bank from an also-ran in lending to real-estate owners and developers to by far the biggest in the business, according to some measurements. Lately, though, Wachovia and other lenders have suffered steep losses on commercial real estate because they were stuck with billions of dollars of debt when the credit crunch hit last summer.
Wachovia, the fifth-largest U.S. bank in stock-market value, has taken write-downs of about $1.6 billion related to commercial mortgages and sharply reduced its commercial real-estate exposure. Separately, Wachovia's woes deepened with its disclosure Tuesday that its previously announced first-quarter loss of $393 million will widen to $708 million as a result of write-downs related to life insurance for bank employees.
The reason for Mr. Verrone's departure couldn't be determined. One person familiar with the situation described the exit as "a perfectly amicable split."
Quoting 'The Godfather'
Mr. Verrone, known for quoting lines from "The Godfather" while negotiating deals, also was a champion of the complex mortgage-backed securities that allowed banks to bundle loans, slice them into tranches and sell them to investors. He also helped popularize so-called mezzanine financing, which allowed borrowers to put less of their own money at risk and was a crucial component of many highly leveraged transactions that were a hallmark of the real-estate boom.
But with the flow of such deals now stuck at a trickle, bankers that specialized in the business are being laid off up and down Wall Street.
Meanwhile, tighter and costlier credit amid tough economic conditions is causing many commercial real-estate projects to be delayed or shelved. The financial problems of developers have led to idling or scaling back major projects from New York to Las Vegas.
Mr. Verrone joined Wachovia in 1995 and transferred to the bank's Manhattan office in 2003 to win more New York deals. He pushed Wachovia into the big leagues of commercial real-estate lending from 2004 to 2007, when building values soared to record prices.
Last year, Wachovia originated $23.6 billion of commercial mortgages that were packaged into securities, compared with $14.9 billion by its closest rival, Credit Suisse Group, according to Commercial Real Estate Direct.
'You Have to Be an Optimist'
"In my position, you have to be an optimist," Mr. Verrone said in a 2006 interview with The Wall Street Journal. "Every building in Manhattan needs a mortgage."
Wachovia's heft left it badly exposed when turmoil erupted in the credit markets last year. In the second half of 2007, the bank took roughly $1 billion in write-downs related to commercial mortgage-backed securities. Wachovia's glum first-quarter results included an additional CMBS write-down of $521 million.
Those losses likely could have been much worse. Because of Wachovia's aggressive selling of commercial real-estate debt, overall commercial-loan exposure at the bank plunged to $3 billion as of March 31, after the effect of hedges, from $13 billion in last year's second quarter.
Wachovia still is trying to sell some of the $3 billion it lent to Lightstone Group LLC for its $8 billion purchase of Extended Stay Hotels from Blackstone Group LP in June.
Wachovia, headed by Chief Executive G. Kennedy Thompson, declined to say exactly what triggered losses of $315 million related to three contracts within its bank-owned life-insurance portfolio. The decision was made after a review of $360 million in stable-value agreements, a type of financial guarantee provided by an unspecified outside company. Bank-owned life insurance can help banks offset part of the cost of employee benefits by providing banks income that generally is tax-free. The bank is the beneficiary, and can receive income either through growth in the value of the policy or through proceeds paid if the insured employee dies.
Christy Phillips-Brown, a Wachovia spokeswoman, said the bank-owned life-insurance portfolio is used as "one way to offset a portion of the cost of offering benefits to employees," adding that all employees who are part of the contracts provide their consent.
It is possible that Wachovia could report gains on the stable value agreements in the future, the bank said in a securities filing. As part of its first-quarter earnings release last month, Wachovia also slashed its dividend by 41% and raised $8.05 billion in capital to bolster its balance sheet.
The bank also is being investigated by federal prosecutors for the alleged laundering of drug proceeds by Colombian and Mexican money-transfer companies.
As of 4 p.m. New York Stock Exchange composite trading Tuesday, Wachovia shares were up 30 cents to $30.08. The stock is down 46% in the past year.
--Jennifer S. Forsyth contributed to this article.
Write to Lingling Wei at lingling.wei@dowjones.com and Betsy McKay at betsy.mckay@wsj.com
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