Ahead of the Bell: Analyst upgrades Wachovia to 'Neutral'

NEW YORK—Wachovia Corp.'s increased focus on stabilizing its balance sheet and financial position has helped offset credit deterioration at one of the nation's largest banks, an analyst said Thursday while boosting his rating.

Credit Suisse analyst Todd L. Hagerman raised his rating to "Neutral" from "Underperform" after a meeting with Wachovia's management at the Charlotte, N.C., headquarters.

The corporate leaders recognize 2008 will be a "particularly challenging year" but are working to improve Wachovia's retail and wholesale banking units, as well as its brokerage division, he said.

"Management appears to be taking a more sober view of the operating environment and recognizing the broad economic slowdown taking place across its footprint," Hagerman said in a note to clients. "This has led to several positive actions (including capital raise, reserve build, reduced risk appetite) that has bolstered financial and balance sheet stability and gives us greater comfort that the company is prepared to weather a substantially more difficult operating environment."

Since the third quarter of 2007, Wachovia has posted nearly $5.3 billion in write-downs. It lost about $708 million in the first quarter.

Hagerman raised his price target to $30 from $23, implying he expects the stock to rise about 4.5 percent over Wednesday's $28.71 close.

Further credit deterioration, especially in the residential mortgage market and investment banking unit, are factored into the earnings forecast, suggesting that risk and reward to the shares is balanced, he said.

"The biggest risk now surrounds a slowdown in overall volumes and business activity, particularly given the company's lower risk appetite and dramatically reduced structured products group," he said.

Wachovia shares rose 9 cents to $28.80 in premarket trading.