“The unprecedented, almost unimaginable events of the third quarter and the consideration for our pending merger with Wells Fargo created a scenario that required goodwill impairment for that and other sub-segments,” chief financial officer David Zwiener said during a conference call on Wednesday.
Wachovia posted a $1.6 billion profit in the same period last year.
The $18.8 billion loss largely stemmed from the retail and small business, commercial, wealth and asset management areas of Wells Fargo.
Wells Fargo confirmed on October 9 that it would proceed with the merger with Wachovia. This announcement came after a tussle with Citigroup who also bid to acquire the bank.
The bank also saw a $6.6 billion credit loss provisions, including $3.4 billion to build reserves to cover losses from its Pick-a-Pay mortgage portfolio. Wachovia’s Pick-a-Pay mortgage plan gained notoriety as the program allowed borrowers the freedom to name their payment; this led to some homeowners paying so little that their loan balances increased over the term of the mortgage.
The bank also dedicated $1.4 billion to boost its loan loss reserves.
Results were also impacted by costs relating to the banks auction rate securities settlement. On August 15, Wachovia agreed to buy back $8.5 billion of these securities. Initially billed as a cash equivalent, these auctions failed in February 2008 as they failed to provide adequate liquidity to investors.