June 2 (Bloomberg) -- Wachovia Corp. fell to the lowest since July 1995 after the bank ousted Chief Executive Officer Kennedy Thompson, signaling the company may report a second- quarter loss.

Analysts speculated that Wachovia, the nation's fourth- biggest bank, will be vulnerable to a takeover or other form of distress sale after a stock slide that has cost the lender more than half its market value in 12 months. The Charlotte, North Carolina-based company said today it isn't ``in crisis.''

The bank had already stripped Thompson, 57, of the chairman's role on May 6 after shareholders -- incensed by the biggest quarterly loss since 2000 -- demanded his removal at April's annual meeting. He joins a half dozen CEOs at financial companies including Citigroup Inc. and Merrill Lynch & Co. who lost their jobs to the global credit crunch.

``We figure since he's leaving there'll be a big loss provision for the second quarter,'' David Hendler, senior analyst at CreditSights Inc., said in an interview. ``They need to present a different picture on the company, which is, `We're in the restructuring mode.'''

JPMorgan Chase & Co., Wells Fargo & Co., U.S. Bancorp and non-U.S. banks including Banco Santander SA may be looking at purchasing Wachovia, Hendler said. Wachovia's market value is about $50 billion. U.S. Bancorp spokesman Steve Dale and JPMorgan's Joseph Evangelisti said their companies wouldn't comment. Efforts to get responses from the other banks weren't immediately successful.

CEO Departures

The bank dropped 40 cents to $23.40 at 4:15 p.m. in New York Stock Exchange composite trading, bringing this year's decline to 38 percent. Deutsche Bank AG analyst Mike Mayo said in a research note today that the CEO's departure may trigger a transaction that boosts the stock to more than $40 a share.

Wachovia Chairman Lanty Smith, 65, was appointed interim CEO, Wachovia said today in a statement that cited ``a series of previously disclosed disappointments and setbacks'' for today's change. A four-member search committee headed by Smith will seek a replacement to deal with fallout from rising mortgage defaults and writedowns tied to subprime home loans.

Ben Jenkins, vice chairman and president of Wachovia's largest subsidiary, its general banking unit, will become chief operating officer, reporting to Smith. No other senior Wachovia managers are leaving, the bank said.

``This company was run under Ken Thompson without very good controls,'' Gerard Cassidy, an RBC Capital Markets analyst, said in a Bloomberg TV interview. Chances are even that Wachovia will seek a new CEO from outside the bank because there isn't a clearly designated successor, Cassidy said.

Killinger's Title

Washington Mutual Inc., the nation's biggest savings and loan, said today that Chief Executive Officer Kerry Killinger would relinquish his title as chairman at the Seattle-based company, which was forced to raise about $7 billion at discount prices from new investors. Unexpected losses have led to CEO departures at some of the largest financial firms, including Citigroup's Charles O. ``Chuck'' Prince and Merrill Lynch's Stan O'Neal.

The world's largest financial institutions reported more than $386 billion in asset writedowns and credit losses tied to the U.S. housing slump, according to Bloomberg data.

Wachovia's board asked Thompson to leave ``several days ago'' and acted yesterday, Smith said during a news conference. No single event precipitated Wachovia's decision, Smith said, adding that while the bank isn't immune to industry conditions, which continue to deteriorate, Wachovia doesn't face any ``crisis'' or need to raise more capital.

Search Committee

Smith has been a director at Wachovia and predecessor First Union Corp. for 21 years and took the chairman's job in May. He heads Tippet Capital, a Raleigh, North Carolina-based investment firm.

The search committee will include three retired CEOs: Robert Ingram of drugmaker Glaxo Wellcome Inc., Joseph Neubauer of food-service company Aramark Corp. and Mackey McDonald of apparel maker VF Corp.

Thompson's credibility was dented after he said this year that Wachovia's $24 billion purchase of Golden West Financial Corp. in 2006 at the peak of the housing boom was ``ill-timed.'' About half of the unit's lending is in California and Florida, two states with some of the highest foreclosure rates.

His reputation took another hit May 6 when the bank said its first-quarter loss was $708 million, 80 percent more than what Wachovia previously reported, because of writedowns for bank-owned insurance policies. Wachovia cut its dividend by 41 percent in April and raised about $8 billion in new capital.

Life Insurance

Losses taken by Wachovia in recent months include a $315 million after-tax charge announced in May tied to the declining value of its bank-owned life insurance policies. The company previously disclosed an $800 million to $1 billion charge because of tax-court rulings involving leasing transactions and a $144 million charge for failing to properly police telemarketers and payment processors.

``These three charges amount to 16 percent of the new capital raised in April and reflected poorly on senior management,'' KBW Inc. analyst Jefferson Harralson said in a note to investors today.

Thompson spent 32 years at Wachovia, heading its Florida and investment banking operations before becoming CEO in 2000. He succeeded Edward Crutchfield Jr., whose fast-paced acquisition style built First Union Corp. from North Carolina's third-largest bank into a dominant East Coast institution stretching from Florida to Connecticut.

Acquisitions

Thompson oversaw the 2001 acquisition of Winston-Salem, North Carolina-based Wachovia Corp., beating back a higher offer from Atlanta-based SunTrust Banks Inc. Success integrating that transaction and the 2004 purchase of SouthTrust Corp. earned him industry acclaim, giving Thompson credibility as Wachovia bought Golden West and then added A.G. Edwards Inc. in 2007 for about $6.5 billion, making Wachovia the third-largest U.S. stock brokerage.

Thompson has $7.2 million of stock options that will vest upon his departure. He also gets severance of $1.45 million, or 16 months of his salary, Wachovia said in a filing.

Thompson can use an office and the services of an executive assistant for three years, and receive reimbursement for legal expenses of up to $50,000, the company said in the filing.

Wachovia is one of the biggest purveyors of so-called option-ARM mortgages, which have become a lightning rod for investor concern about defaults. The adjustable-rate mortgages allow borrowers to skip part of their payment and add the sum to their principal.

Falling Values

With home prices in their worst swoon since the Great Depression, the amount owed on some option-ARMs is rising even as the value of the homes they bought is shrinking. That means Wachovia might face losses on mortgages if it's forced to foreclose.

Fourteen percent of the bank's option-ARM loans matched or exceeded the value of the underlying property in February with three-fourths of those loans in California, the bank has said. Wachovia's has estimated losses of 7 percent to 8 percent loss on its option-ARM loans, which Morgan Stanley has said may be optimistic.

To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina, at 6587 or dmildenberg@bloomberg.net.

Last Updated: June 2, 2008 16:59 EDT