Wachovia's "Solid Underlying Performance"

From Wachovia's earnings release this morning:

"While solid underlying performance was overshadowed by market disruption- related valuation losses of $2.0 billion..."

This just isn't genuine. In just the past quarter, the company reported a 93% increase in its provision for credit losses and net charge-offs jumped 66%. The allowance for loan losses as a percent of loans has been steadily climbing the past few quarters (1.37% this quarter, .98% last quarter, and .78% in the prior quarter). However, the allowance for loan losses as a percent of nonperforming assets has actually been falling. I'd love an explanation for this. I suspect the company is still not adequately reserved.

To his credit, CEO Ken Thompson did state that he was deeply disappointed with the results, so this certainly isn't some whitewash sugar coating. But to talk about "solid underlying performance" is misleading. The charge-offs and provisioning that the company is taking now are a reflection of bad loans the company issued in prior quarters and years. Essentially, the earnings for those prior periods were overstated. You can't just talk about how strong the business is if you ignore the bad loans. This is a bank! They make loans! That's their business!

It's like a doctor touting what a terrific surgeon he is - if you ignore all the patients who died.