Wachovia and Lender Woes

As WSJ.com is reporting, Wachovia Swings to Loss, Plans to Raise Capital.

I noticed that Wachovia was retreating from some its lending relationships. The retreat made little sense because they were good borrowers with very solid sponsors. I assumed that Wachovia was trying to preserve capital. That turned out to be true as Wachovia admitted that they are trying to sell stock to raise another $7 billion in capital.

I think there will be a few more banks looking to raise capital in the next few months. Many banks just blew their risk analysis. There is a great piece by Adam Davidson on NPR: Why Risk Models Failed to Spot the Credit Crisis.

“Every big bank has a risk management team whose job it is to keep the banks out of trouble. The teams use complex computers to guide the banks away from financial danger. But as the global credit crisis shows, those models failed to keep many major U.S. and foreign financial firms from making bad bets on mortgages.”