FOR EDUCATIONAL PURPOSES
Published 9:02 PM ET Mon, 15 Sept 2008
WHERE: CNBC'S "MAD MONEY W/JIM CRAMER"
CRAMER: I think Bob Steele's the one guy I trust to turn this bank around, which is why I've told you on weakness to buy Wachovia. We got weakness today.
CRAMER: Less than two weeks after Bob took over on July 22nd, he did about the most bullish thing a CEO can do: He bought a million shares of his company's stock between $15.32 and $17 on the open market. Down about 6 bucks now. Seems to me that insiders only buy for one reason, though, to make money. Which leads me to believe that Steele thinks Wachovia is worth a lot more than the 10 and change it's trading at now. Bob Steele's an old hand, a seasoned pro. He was at Goldman back in 1990.
Mr. Bob Steel, welcome to MAD MONEY.
CRAMER: Dow down almost 500 points, really concentrating on the financials. One that was down severely today, Wachovia, down about 3 1/2 bucks.
Mr. STEEL: We’ve kind of had a three-part strategy. Number one, take responsibility and understand the issues. These are the challenges we have. We're going to be open and talk about them. Number two, work on the balance sheet. We've basically been working. We cut the dividend, we're reducing expenses by $1 1/2 billion. We're also cutting the balance sheet by $20 billion. Those three things will generate between 5 and $6 billion in incremental capital in the next year.
CRAMER: But we had an analyst on earlier today, Meredith Whitney. She was on with Maria Bartiromo. She said that you're using wildly optimistic assumptions for your gigantic California portfolio, and that has to be marked down. What do you think of that kind of analysis?
Mr. STEEL: Well, I heard Meredith's comments, too, and what we've taken the approach is, you know, everybody has lots of assumptions and you can choose one number, Meredith can choose another.
CRAMER: Right.
Mr. STEEL: We have time and we can work with the individual mortgages. We think that will yield quite attractive returns over time by owning these assets.
CRAMER: There needs to be more capital raised. How can you, at 10 bucks, raise more capital?
Mr. STEEL: Well, I think first of all, we're raising capital ourselves by basically shrinking the balance sheet, cutting the dividend, cutting expenses. We can create more capital ourselves that way, $6 billion.
CRAMER: What does a rate cut mean to the net interest margin, to your profit margin at Wachovia?
Mr. STEEL: Jim, it's quite positive.
CRAMER: Wachovia has a reputation for good service and has a reputation, and I'm not blowing smoke, I'm looking at the positive growth in this environment.
Mr. STEEL: Sure.
CRAMER: Tell people why deposits matter.
Mr. STEEL: Jim, we take deposits. We have $300 billion of deposits to fund approximately $500 billion of loans. These deposits we take very seriously. We have 5,000 different financial services offices where we work with consumers, develop them and basically do our very best to give the best service possible so that–so that people–customers will come in and trust us with their deposits. It's a critical part of our business model. We have $150 billion of consumer loans. Roughly a third are legacy Wachovia mortgages. They're performing great. They're to guys like you and me that walk into branches that we know. The second group, Jim, is second lien, where our business is performing better than anybody else's.
CRAMER: Really?
Mr. STEEL: Yes.
CRAMER: These home equity loans?
Mr. STEEL: Yes. Whether there are people–again, people that came into the branches and know us well. And the last is our auto book, which is performing very well. That's 90 percent of our consumer loans, which are 150 billion.
CRAMER: Bob, the speed with which Mellon went into good bank/bad bank, removed a lot of people, and cut expenses was electric and dramatic. Are you on–are you on a similar aggressive timetable to get this done?
Mr. STEEL: Jim, let me just tell you. We cut the dividend within two weeks.
CRAMER: Right.
Mr. STEEL: Basically, that's $4 billion between now and the end of next year. We've said that we're going to reduce the balance sheet by at least $20 billion. We're almost done already. And we've also said that we're going to basically take a billion and a half out of expenses. That's 10,000 positions that–of people that will be leaving Wachovia. Eighty-six percent of those people have already been identified and notified.
Mr. STEEL: Jim, we have a great future as an independent company, but we're a public company. So we're going to do what's right for shareholders, I can promise you that. But we're also focused on the very exciting prospects when we get things right going forward. I didn't have time today to talk about the good things going on at Wachovia.
CRAMER: Hit me with some positives
Mr. STEEL: The infomercial's simple, Jim.
CRAMER: OK.
Mr. STEEL: It's basically, you said it. It's customer service.
CRAMER: Right.
Mr. STEEL: It's whether you look at it in the retail bank, the commercial bank, it's triple A any way you slice it.
CRAMER: Right.
Mr. STEEL: So any way you slice it, there are lots of good things going on, customers are pleased, and we're focused on delivering on that side, in addition to the balance sheet issues and the challenge in loan portfolios.