Good morning. My name is Regina and I'll be your conference operator today. At this time I would like to welcome everyone to the Wachovia Second Quarter 2008 Earnings Release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday, July 22, 2008. I would now like to introduce Ms. Alice Lehman, Director of Wachovia Investor Relations. Ms. Lehman, you may begin your conference.

Thank you, operator and thanks to everyone out there for joining our call this morning. We hope you have received our earnings release by now as well as the slides we will be using in today's presentation and our supplemental quarterly earnings report. If you haven't, all of these documents are available on our Investor Relations website at wachovia.com/investor. In this call we will review the first 28 pages of the slide presentation package. In addition to this teleconference, this call is available through a listen-only live audio webcast. Replays of the teleconference will be available by about one o'clock today and will continue through 5 PM, Friday, October 17. The replay phone number is 706-645-9291, the access code is 49418191. Our CEO, Bob Steel, will kick things off. He will be followed by CFO, Tom Wurtz, and our Chief Risk Officer, Don Truslow. Also with us are, our Chairman, Lanty Smith and other members of our executive management team, all of whom are here to answer your questions as well. We will be happy to take your questions at the end. Of course, before we begin I have a few reminders. First, any forward-looking statements made during this call are subject to risk and uncertainties. Factors that could cause Wachovia's results to differ materially from any forward-looking statements are set forth in Wachovia's public reports filed with the SEC, including Wachovia's current report on Form 8-K filed today. Second, some of the discussion about our company's performance today will include references to non-GAAP financial measures. Information that reconciles those measures to GAAP measures can be found in our filings with the SEC and in the news release and the supplemental material located at wachovia.com/investor. And finally, when you do ask questions, please give your name and your firm's name. Now, let me turn this over to Bob Steel.

Thank you Alice, and thank all of you for joining. This is an important call for Wachovia and we appreciate your attention. As Alice said, the call this morning will really be in three parts. After some introductory comments by me, Tom Wurtz will talk about the facts and the financials, then Don Truslow will talk about some challenges in our credit area and what we think are very realistic assumptions for dealing with this and our strategy. And then lastly, I'll return to make some concluding comments about capital and liquidity. And thank you for your attention. As Alice said too, we have business leaders with us here in the room today. So should your questions be best answered by one of them, we will introduce them and they can speak more specifically to the issues. Now let me began by introductory comments and reference you should you be looking at the deck to page 1. Basically, the facts are outlined on this first page. There were GAAP losses of $8.9 billion, including a $4.2 billion credit reserve billed that we have previously announced, as well as the goodwill impairment we'd also [inaudible] for you earlier which totaled $6.1 billion. Excluding the goodwill impairment, we had an operating loss of about $2.7 billion, consistent with what we had announced previously on July 9. And excluding about $9 billion of what we are calling "Notable items", we generated $4 billion in pre-tax pre-provision results. This is a very important fact to us at Wachovia. The core franchises of our company are strong and in some cases getting stronger and our goal is to make them the strongest. But let me stop, our reported results today are clearly a disappointing performance for which we take responsibility. We are serious about getting…

Thanks, Bob and good morning to everyone. I'd ask you to turn to page two and you can see the headline is the GAAP loss of $8.9 billion, and that corresponds to an operating loss of about $2.7 billion in the quarter. And just a reminder, all of you are well aware that the goodwill impairment is $6.1 billion is non-cash and capital neutral. One of the highlights for the quarter would be strong net interest income growth, you have seen a lot of that across the industry. We had expected it to be up strongly and absent the impact of a $975 million SILO charge that we've previously disclosed, net interest income was up 11% on a linked quarter basis. That was driven both by balance sheet growth and a nice improvement in the margin up 23 basis points before the impact of the SILO charge. Earning assets and low-cost core deposits were up about 2%, fees up 14%, you will hear more about the strength in the underlying businesses, but we had good performance in service charges, the banking fees, advisory and underwriting, and other income and market disruptions losses were reduced by about $1.4 billion and that is associated with a dramatic reduction in exposures which Don will speak to you later. Expenses up on the surface 14%, however excluding in addition to the legal reserve, they are only up about 3%, when you consider both the legal reserves and non-merger severance. And the 3% increase was driven by higher incentives based on higher revenue and annual merit increases. Turning to page three, beneath the headline GAAP loss for the quarter, there is a positive story regarding the fundamental underpinning our businesses. This quarter is laden with high-credit costs and a number of notable items, which are…

Thanks, Tom. And now what we will do is have Don comment on some of the issues I aligned earlier with regard to credit, and issues in the housing-related and market disruption exposure. Don?

Thanks, Bob. As has been mentioned, credit costs were very significant for the quarter, and credit metrics showed pretty meaningful deterioration throughout the quarter, primarily through the continued slide in the housing market. We continue to confront unprecedented housing price declines in the market, especially in certain markets in California where we've got Golden West concentrations. About two-thirds of our credit costs for the quarter were related to Pick-a-Pay portfolio for both building reserves or covering charge-offs. Secondarily, but still housing-related, we continue to work through the challenges presented by the commercial real estate portfolio, tied to the housing market. Outside of those two portfolios, we have seen credit costs increase, but at a pretty manageable pace, and also I'd say, very much in line with what we have been anticipating and talking about for several quarters, and in line with what... I think one might expect to see in this part of the economic cycle and the credit cycle. If you flip over to page 12... slide 12, it provides an overview of the credit metrics for the quarter. Again, period-end loans of $488 billion, non-performing assets ended the quarter at about $12 billion, which was up $3.6 billion at the end of the first quarter. 80% of the increase was driven by the Pick-a-Pay non-performs and higher NPAs and real estate loans related to residential properties. Pick-a-Pay non-performs were up $2.4 billion, and end of the quarter it was about $7 billion. Of that $7 billion representing nearly 60% of the company's total non-performing loans. The nature of the Pick-a-Pay non-performing balances as we have discussed before, are such that we would expect they will continue to rise given this just fundamentals of the time frame [inaudible] how long it takes to get that property through foreclosure, that's…

Great, thanks Don, and now what I'll do is try to move to conclude and then we can get to your questions. And I will conclude with talking about the initiatives that are already underway to protect and preserve and generate capital and ensure the right liquidity. If you turn to page 24, you can see a summary of the... on the right-hand side, a description graphically of various capital ratios and as we've announced, we are reducing the quarterly dividend to $0.05 per share and that will result in approximately $700 million of capital quarterly being preserved. Nextly, we are reducing expenses as budgeted and deferring capital consuming initiatives and we think that will preserve up to $1.5 billion of capital in the '08, '09 period. Nextly, we are also being much more disciplined about the balance sheet and risk reduction strategies which we think will affect results rather in a $20 billion reduction in loans and securities by this year-end, which should free up as much as $1.5 billion of capital. We also mentioned that Pick-a-Pay refinance, we're going to be driving towards marketable alternatives and that will be a very, very important initiative. We have the potential should we need to, to consider the sale of non-core assets. If you turn to Page 25, we drill down in this a bit more with regard to the $1.5 billion of reduction in estimated expenses. We've begun a thorough reduction, a thorough effort of expense reduction in early June and we plan to lower the full-year expenses by a $1.5 billion against budget. That will be about 40% in personal, 25% in other categories, 23% in projects and 12% in marketing and advertising. These initiatives have been identified or/and are in progress. Second half '08 expense benefit of approximately…

Operator: [Operator Instructions]. Your first question will be from Jefferson Harralson with KBW.

Hi, thanks. I want to ask you about the call on capital that could be coming in the form of the prudential put, I've seen it written that, that it could be a $5 billion evaluation at some point in the future. What is your... what were your thoughts about the potential of a prudential put and how can you plan for that potential event?

Great, thank you. As I said earlier, we have all of our division leaders here and so I'm going to refer that to David Carroll, who is sitting here with me. Thank you.

Yes thanks, Bob. First of all, I should make sure everyone is aware that the partnership with Pru has been quite a good one for both of us. And Pru has been pretty candid about their satisfaction with that partnership. As you know, in the formation agreement, which is a public document, it was revealed that they... their first put option was eligible for July 1 of this year. I would be surprised if they put it given the profitability of this venture. Also, the benefits of the AG Edwards acquisition won't be fully borne out until 2009. Edwards placed the value of their put would be significantly enhanced by the $680 million and expense efficiencies that we are on track to get. So, certainly can't speak for Prudential, but given the nature of our relationship for the past five years, the profitability of this, and the value ahead, we'd be surprised by that.

All right. If it's true that the Prudential put would be $5 billion, it kind of assumes that your value in it is $15 billion, would you guys consider selling this business, is there anything in the contract that would prevent you from selling it, and what would be... what is your basis in the investment right now?

This is David Carroll again. I'll defer to Tom Wurtz on any comment on the basis that we are the majority owner of this business and the only thing that requires a super majority, both in the formation agreement would be change in ownership, that is something that we could do and I'll defer to Bob on where this fits into our overall strategy.

Tom, do you want to comment on the basis?

All I can say Jefferson, I wish I had somebody to defer to you on that one too, because I don't know the answer to that and I'm sure the IR team can filter [ph] that back to you.

I think that in terms of... I'm giving my arms [ph] around the all the strategic questions along with my colleagues but I just think that from our perspective this is a core part of our business in our franchise model, it's worked out well, the collaboration with the Prudential has been good and we are working into that process but we're also always thinking about the what ifs or what coulds, but it is something that view as an attractive business opportunity and it also fits in well with a lot of the other aspects of Wealth Management and Asset Management where we have a great, great potential to build on these existing skills. You look at the breadth of the opportunity and that we're strong and well positioned in so many parts of asset management that [inaudible] to a great business for us to continue to drive and grow and we're quite excited about it.

All right. Thanks a lot, guys.

Your next question will be from Mike Mayo with Deutsche Bank.

Good morning.

Hi, Mike.

Bob, you are new as CEO, you've had a record in government, many years at Goldman Sachs, you have nothing to defend. What's your view about Wachovia needing to raise additional capital?

I think that we've taken what we believe are some really clear and instantly measurable steps of which were hard decisions to reduce the dividend, point one. Point two, we have outlined a series of projects and plans that are in process already that we believe will give us a substantial improvement in our capital ratios. We have other leverage should those not be enough, but I think you can hopefully hear the determination to work through this situation and to the very best of our ability, be thinking about what's best for our shareholders as we work through this.

So, do I read that to say you are not raising additional capital any time soon?

We are raising lots of capital by reducing the dividend, managing our expenses and running our businesses better, and that's the plan for now.

What about through a common stock issuance?

That's not on the plan. We recognize the different costs of capital and was... as I try to describe that we have lots of options for what we can do and while I can't tell you what will unfold, I can tell you that for now that our plans are to improve our capital position by the ways in which was outlined in this presentation.

And then when you refer to the $4 billion of pre-provision, pre-tax earnings, I guess that's $16 billion of cushion to absorb loan losses each year. Did that factor into your analysis?

Mike, absolutely. The fundamental strength of the businesses are evident by that illustration. Now we don't expect not to post a provision and we don't expect that there won't be additional market disruption losses or something else on the horizon that generally comes in a difficult operating environment. But it does give a very strong sense of the core underlying capacity to absorb losses and to build reserves over the intermediate time frame.

Then my last two related questions, you had $9 billion of notable items, how much more notable items might we see over the next quarter or two? I think we see over $1 billion of reserve bills and Pick-a-Pay based on slide 17. So that might be... when, how much more notable items might you have in the next couple of quarters. And can you reconcile your 11% cum losses on Pick-a-Pay with some of the trading values and some of the securities at like 45% losses?

On the first one Mike, it is certainly impossible to estimate what the notable losses could be in the future. What I'll say is we've taken the actions to reduce exposures which subject us to market volatility. We have addressed in a permanent way, things like the SILO, we've made very substantive additions to legal reserves, the asset security or the security sales or discretionary items. And so therefore we've certainly diminished the universe of things that could coagulate in the future, but it will be bullish for me to sit here today and suggest that we won't have or that all the industry participants won't have additional things that disappoint them.

I think Mike, with regard to your second question, I'll invite Don to comment. But I think what we've done in this middle section is described in excruciating detail, we hope in interesting detail and there is even more in the appendix that basically talks about this where we think we're describing how we're viewing this portfolio, we're trying to be forward-looking and straightforward about this and we think our description is consistent with what's appropriate. Don, would you like to add anything?

Bob, just to add to that. We think we've taken a realistic view based upon our current outlook. And I'm not sure how to reconcile it with Mike what you're seeing in the market and certain securities other than the product features and just what may be very portfolio specific. But again we tried to provide lots of information here for investors have a good sense of what is in the portfolio, and how we're thinking about it.

But when you try to sell some of these assets, what is the liquidity like when you try to sell it... what's the liquidity like today versus say early '07?

Well, it is Bob. I'll start again and I will let Don comment. I think that we haven't been selling, we've looked at a variety of ways in which to extract value, manage the portfolio, focus on modifications, refinancings and things like that, and that has been our strategy.

Also, it has been a very illiquid market, and so not sure it makes a whole lot of sense for us to sell portions of the portfolio right now.

And there's also the prospect in some cases of converting to conventional products. So I think we have... again a series of alternatives as opposed to just one that might be selling into a stressed illiquid environment.

Thanks.

Your next question will be from Meredith Whitney with Oppenheimer.

Questions, one is specific and one is more general. Of the roughly $315 million reduction in CapEx, can you say what that is as a percentage of total I mean what specific projects will be reduced under that umbrella? That is my first question.

Meredith, just in terms of some of the things as Bob mentioned, we are going to reduce the intensity of the branch expansion. We also... there is a variety of projects that address underlying discretionary infrastructure activities that will be delayed. Just across the company, what you find is that with a company as broad as ours that there are literally hundreds of projects, it is about 500 that will be under review, and each one of those consumes a relatively modest amount of capital. And when you put those on the shelf, I mean you end up saving a very substantial amount.

Okay. And just to remind, what percentage of total is that from the CapEx budget?

Meredith, this is David Carroll. I sort of oversaw this initiative over the last five weeks, and basically what we did to give a little more detail on it. We took the first six months of this year's actual run rate expenses in the company, and looked at the next 18 months forecast, we've backed out occupancy and incentives, and sought to reduce that in the way that would not impact any ongoing operations, service-quality, cycle times and those kinds of things. The $1.5 billion represents a 9% reduction to the forward spend, and as our forward view would hold it right now or have it right now, actual expenses next year would be below this year's actual... about $200 million, but it is $1.5 billion off of the forward run rate. And Bob covered the composition of that, it is 6,600 existing MTE's, it is canceling 4,400 open positions. Basically we've taken a good bit of growth initiatives that we are in our forward plan out, reflecting the current market environment that we are in.

Okay. I guess I was just trying to get in terms of the technology investments and things like that. But if we don't have specific number for CapEx budget, is that what you are saying?

The technology component of that is --

Or just more broadly... just as specific CapEx budget?

I don't have the total for that, sorry.

Okay. Thanks for that. On page 5, this is sort of my broader question, and you review your growth in CD's. My broad question is you guys have a big deposit base, and access to federal home loan borrowing. Why now would you grow what is relatively more expensive, cost of borrowing or why not my point is why wouldn't you go through your core deposit base, why won't you go through Federal Home Loan, FHLB borrowing as your mortgage portfolio growth and things like that?

There is a couple of reasons Meredith. First of all, I'd point, we want to meet the needs of existing customers, you can see that 52% of these incremental CDs were sold to our existing customers. It can be useful customer acquisition strategy and you see that roughly more than a third of the CDs were sold to new customers. If you look at the raw rate that's paid you may conclude [inaudible] that's a high incremental cost. However the reality is, customers tend to renew their CDs upon maturity, customers tend to buy other products during the term of the CDs and when you blend those two things then, we think it's very compelling from a financing standpoint as well as building the franchise. So we really don't have any question about the financial attractiveness of the strategy we perceived.

So, you would you say that your growth in CDs is a marketing investment, because obviously it's relatively more expensive than your core deposit in HFLB borrowing base?

Meredith, let Ben Jenkins jump into here. He can provide some perspective.

Meredith, Hi. I would say a couple of things, I'd want to remind you that real deposit focuses on low cost core and we are pleased with low cost core relationship deposits and the growth we are getting there, both in money market and in checking. We see this from a customer acquisition standpoint, optimistically, there are times that we want do it... at times we've don't. As Tom mentioned early in the quarter, we did not and we let because of the pricing, FCGs run down, we thought now it was appropriate from a pricing standpoint and we are offering those CDs attracting a lot of non-customers that we would hope and work to cross sell. 80% of the CDs that we sold have been to new customers and we will work hard to sell those additional products.

Okay, fine, thank you.

Thank you.

Your next question will be from Chris Mutascio with Stifel Nicolaus.

I think, Don, I have the quick question for you I believe. If I go to page 17 in the slide, you talk about the updated reserve model for the Pick-A-Pay. If I look at the second half credit cost, I guess, the way I read that, $3.6 billion that's roughly $1.8 billion a quarter, so is it implying a $2 billion reduction in the reserve build for the Pick-A-Pay going forward on a quarterly basis?

Christopher, as part of your question, we see building the reserve by $1.3 billion roughly for the second half of the year. And then as we head into '09 as I mentioned in the comments, we would expect that right now our assumptions would be that we begin to see a leveling out of housing and therefore trailing down of charge-off in 2010, 2011, which would impact the need to either reserve build...build reserves in 2009 or begin releasing reserves in 2009.

I probably didn't state that correctly, I was looking at second quarter you had about $3.8 billion in credit costs related to Pick-A-Pay, which includes the additional provision. And if we just look at the second half of the year looking at $3.6 billion and divide that by two to get a quarterly run rate, that's $1.8 billion. So it looks like the reserve building certainly will be a significant going forward off of the second quarter level?

That's correct.

And then, can you also comment, and may be this is a question for Bob, but on that same slide, above model the output does not reflect the anticipated benefit of planned portfolio reduction and other mitigation strategies. Can you provide a little more color on what those strategies might be?

Sure. I'll start and then maybe invite some my colleagues, but I think that and the reality is that the news in some case good, in some case different is that we control these assets and they're subject to us doing lots of things with them and whether it's working on modification, refinancing, getting people into different products, government guaranteed, and things like that. But this is an active effort on our part to manage this portfolio for long-term value, and we're going to be doing that with a relentless focus. Anything you want to add to that?

I would just add that as we look at a borrower who is undergoing stress, if that borrower is in a market that we anticipate will substitute decline, we're probably less likely to modify that loan if it isn't apparent that borrowers can have the capacity and the willingness over the immediate horizon to continue to make payments and then we begin to investigate more aggressively, is there an opportunity to encourage a short sale, is there a way to provide assistance to the borrower in terms of a refinance opportunity where we would offer concessions [ph] or offer assistance of buying down the rate on a new purse. So there is a variety of things that we can employ, we're willing to put a wholehearted effort towards it. And at this point, it's just impossible to estimate what the customer response will be to it as we have just essentially gone through them this week.

And I think that there is good news and different news and things and the fact that we control them and on our balance sheet and they are regionally concentrated, then it makes it more... it's more efficient or effective for us to think about that. And our goal is not... we are not planning to sell these assets, we're planning just do what we can to realize value over an intermediate period of time.

Fair enough. Just one follow-up question, this last one. Tom, going back to the first question on the call, if Prudential were to put back the JV to you, you can pay for that in stock rather than to come on in cash?

That is correct.

All right. Thank you very much

Thank you.

Your next question will be from Nancy Bush with NAB Research LLC.

Good morning. Three questions here. Number one, in several places in the slide deck, you mentioned a review and possible sale of non-core assets. Could you just give us some idea of what might be considered a non-core asset and what the timeframe is, you are going to be taking here to make that decision?

Well, let's see, I think I can... may be... it's Bob Nancy. I can give you, I think, some idea but probably not as much as you would like. I think the reality is that we are looking at everything and evaluating different activities. But there are certain things and businesses that we have that are not central to what we view as our mission. And we're going to focus on those and try to understand the various alternatives. The reality is too that we described we think a series of rolling activity, some of which are already in process of achieving capital increases by not selling assets. And we are going to focus on those, and I think we'll have more to report in the months ahead as we try to think about these different issues.

Would these be primarily commercial businesses or assets or if you could just give us some idea of which part of the balance sheet they would becoming from?

I think I would really like if you just give me a bit of pause here for me to buy a bit of time. And I think, we'll try to give more context and structure to this in the next couple of months.

Question for Tom. The ongoing impact of the SILO issue, can you just tell us what that's going to be? We just went through this exercise, the few core things unlike that your approach or your thoughts are on this?

It's really quite insignificant as we look forward to next year, I think it's in the neighborhood of the $30 million drag, something like that over the next... till 2009. So it's relatively immaterial for the next four, five years and then finally sometime in the mid-teen years like 2013, 2014, you'll begin to see the recapture of this recast right off which stands over the next 30 years, so it's pretty immaterial to earnings in the intermediate product.

So we shouldn't be building anything in the margin impact, etcetera, etcetera for the... looking forward.

$30 million or $40 million next year is probably, at least holdings.

Okay. And a question, final question for Ben. Ben, this is your [inaudible], of course, you've got the much discussed 4.25% 12 months CD out there, which seems to be the leader in the CD effort. Can you just tell us what kind of deposits and relationships you've gone on with this thus far?

Nancy, I made some reference to that in I think, Meredith's question, we brought in $12 billion or $13 billion in that offering and we've been able... I don't have the figures, we are pleased with our checking sales against that, and I know the number of new customer base was 36% or something like that. So there's a big new customer element there that we can... or it's 80% new customers, so there's a big element of new customers that we can work for cross sales. Already the cross sales on the checking side are good, but I don't have that percentage number.

Okay. Thank you very much.

Nancy, it is Bob again. Hopefully we can give you more information in the not too distant future and I admit to being a bit evasive with question one, but we will work hard to be more constructive and to keep you posted as things unfold. Thanks a lot for your patience.

Your next question will be from Ed Najarian with Merrill Lynch.

Nancy and Mike pretty much asked my main questions. So I guess, I just have one more question for Don. Could you give us some idea to what extent the $12 billion or the $11.9 billion in non-performing assets have been written down to fair market value? Just broadly, don't need it category by category, but just to what extent should we anticipate or think about additional losses coming from what's already on NPA status?

Yes Ed, it's very good question. And on slide 42, there is a bar graph that basically outlines the non-performs related to the Pick-a-Pay portfolio. So, just under $7 billion shown here, and this wouldn't include the other real estate, and so you can see out of this portfolio, there's about $500 million or so that it's already been written down, and then of the $3 billion, $3.5 billion of commercial non-performs, roughly speaking between what we have specifically reserved and FAS 114 reserves or written down, the combination of those two things would be kind of in the 25% to 30% range roughly, where we've already basically recognized the credit costs. I don't know if that helped or not, I don't have a lot on top of my head, the... what would make up the reminder, but that would be roughly $10 billion or so of total of $12 billion.

And I guess I was a little bit confusing. What would be $10 billion of the $12 billion?

Well, the matter is that, what I've just mentioned to about Pick-a-Pay is about $7 billion and then the commercial non-performs was a little over $3 billion. The total of those two, $7 billion and $3 billion would be about $10 billion, $12 billion of the total non-performs. So I just don't know... it came at the top of my head what, how to mention the other $2 billion.

So, [inaudible] given attribution to 10 or 12 and if you... and we can get you more detail on the other two.

Okay. So just maybe to isolate that 10 of the 12, it sounds though like there could be some fairly material additional write downs or charges may be is a better... or charges against the existing reserve related to that $10 billion. Is that a fair assessment?

Edward, we just have to see as things unfold, but obviously part of the $4.2 billion reserve bill would include our view of remaining a loss content in our non-perform portfolio.

Great. How would that go against existing reserves, but in your mind, not really come through future provisions?

That would all depend upon our evaluation of the allowance in the future periods, again our evaluation of the lost content of the portfolio at the time.

Okay, all right. Thank you.

Tom, did you want to add something?

Ed, clearly the reserve that we have for the Pick-a-Pay portfolio reflects the losses we expect in the existing non-perform portfolio as well as the entire performing portfolio. Right now the reserves or the charge offs that have been taken against the NPAs are something less than 10% of the NPAs we've been experiencing severities in mid-30s, so with every one of those loans went through and experience something similar, and they'll be somewhere around $1 billion more to take and that was incorporated into the existing reserve delta.

Okay, okay. Yes, that's very helpful. Thank you.

Great, thank you.

Your next question will be from Todd Hagerman with Credit Suisse.

Good morning everybody. Just a couple of questions. Just in terms of deleveraging the $20 billion EBITDA identified, if you could just give us a sense of the mix between just in terms of the existing securities run off as well as how you are thinking between the consumer commercial portfolio. And specifically assuming again that there is something specifically been identified, any potential for impairment that is coming down the road?

Tom you want to start?

When you speak of impairments, are you referring to goodwill impairment?

No, no. Just in terms of the prospects for loan sales or asset sales, if you will, presumably the $20 billion figure has something specific identified?

Yes, it doesn't anticipate sales at this point. As you can imagine starting out with the $127 billion Pick-a-Pay portfolio with no new origination, and the absence of a prepayment penalty as a disincentive. We've been experiencing prepayments of around 12% to 14% over the last several months. So you can do the math there to figure out what the impact there would be. We also think that given the core volume was related to the way the prepayment penalty that will stimulate, in at least in the near-term a higher prepayment rate. We have alluded to the fact that we're going to be very aggressively trying to interact with customers to identify refinance or short sell opportunities for them. And then, in the securities portfolio, maturities probably will be somewhere around $5.5 billion to $6 billion over the remainder of the year so that gives you a good starting point. And then across the franchise, again as we look at all our relationships and that is whether they're... a core relationship with many aspects to it or whether it's credit only we have the opportunity for non-renewals, and by uprising of incremental credits, that will also provide some relief on the inflow side. So I think we feel pretty good about the ability to achieve this over the remainder of the year.

And so, right now Tom, you don't anticipate a specific loan portfolio or package sale?

The $20 billion does not kind of play that. Now, marketing conditions may change such that that is attractive right now that would not be something that would be on the table.

Okay. And then just secondarily going back to Don and your earlier comments you indicated that you have taken certainly a more negative view of housing since the first quarter and that's certainly reflected in the reserve methodology in your assumptions there. But I guess at this stage of the game, it's certainly it's fair to assume that this is getting worse. But why could this not very well change in the coming quarter or so, and what gives you kind of comfort at this stage that the 12% cumulative [ph] loss assumption, if you will is kind of the right number?

Todd, well, it's a very dynamic market and like everybody else we will adjust as things unfold. But we think we have got what is a very realistic outlook based upon what we're seeing on the ground and from other sources and our economists and so we feel that the actions we took at the end of the second quarter were very, very appropriate and that reserve is adequate. There are some out in the market that are talking about a potentially more pessimistic view and some that are talking about more optimistic view and I think it's just a reflection of -- it's being a very dynamic market and very impressive environment.

And I think Todd, it is Bob that if you look at page 15 to 16 in the appendices, you can model off of our assumptions. And we try to take a balanced perspective given the environment, and we have also tried to be very transparent as to how we're thinking about it, and allow you to challenge the model in different ways yourself, and we will continue to do the same thing too, consistent with what we see in the market.

Terrific. Thanks for the color.

Your next question will be from Matthew O'Connor with UBS. Matthew O’Connor: Hi, guys. I might have missed this. But what is the deferred interest for the Golden West portfolio, any risk of reversals there?

And that... search for the...

$3.8 million... $2.8 billion Matt. And when you say is there a risk of reversal, I would just say that it adds to the principal balance of a loan, it is that particular loan with a deferred interest balance and then there is no difference than any other aspect of the principal balance.

And Matt this is Don, in the appendix on page 30...43 there is a schematic that outlines the breakdown of deferred interest. And deferred interest at the end of the quarter represent just a little over 3%, and that's been relatively consistent over the last few quarters. Matthew O’Connor: Okay. That's helpful. And then kind of a bigger picture question. I know it is tough to look out a few years here, as you think about the balance sheet and lot of the Golden West portfolio runs off and shrinks into other areas how would you expect to reinvest some of those assets to get freed up or should we expect $100 billion or $150 billon deleveraging, over the next few years.

It's Bob again. I just feel like... I'd like to speak to that issue after a bit more time. We're really focused here on dealing with the challenges with the credit issues that we've raised, number one, and number two making sure that these strong business franchises get managed and that we set the stage for continued growth where we have so many opportunities. And I think as we... and this is probably my fault, I just feel like I need to have a better understanding to give you a more complete answer. But in the sake, in the spirit of full disclosure, we'll be talking about that in the months ahead. But I just ask to back off a bit, so I said our key focuses are working on our balance sheet and making sure these strong business franchises get the right attention they deserve. Matthew O’Connor: Yes, fair point. Just lastly, is there any benefits to moving the Golden West portfolio to discontinued operations?

I suppose the only benefit, I would have to check to see whether that is something we could do, but the only benefit would be that it moves it away from the general bank to provide more clarity and it makes the schedule that we showed on the page with and without mortgage in the general bank unnecessary, but that's something we'll give some considerations to math.

Yes, I think that where it is, is a state of mind. We are focused basically on making sure we understand it that we have the realistic expectations and that we do our very best to achieve the best outcomes from the portfolio of assets that we own on our balance sheet in a concentrated area, which gives us lots of alternatives, and that's our focus. Okay, thanks very much.

Your next question will be from Brian Foran with Goldman Sachs.

Good morning. Yes, I think that's the most loss estimates for option ARMs, they partially lie on the fact that most borrowers are making the minimum payment and thus eventually will hit the LTV recast and also an assumption that most borrowers who recastle eventually fall. Do you have what percentage of Pick-a-Pay borrowers are currently making the minimum payment. And then secondly, if we just look at that Pick-a-Pay borrowers who've hit the LTV recast to date realizing it's a small piece of the overall group, what is the frequency of the fall for those borrowers?

Sure. We've got that here. Give us just a second to get to the right page and then we can refer you to it.

Brian, this is Don. We are looking in the appendix, page 40 would address the pattern of recast, Brian, which I think would probably give people a fair sense of comfort in terms of what would be subject to recasts based on the 125% balance limitation. And for anyone that doesn't have the deck in front of them, basically it's $7.5 million in 2009, $20 million in 2010, $85 million in 2011 and about $650 million when we out to 2012. It's probably worth also noting that in the modeling, it assumes that when somebody loses their equity, they go to the minimum pay option. So, that is embedded in the credit modeling.

And what would be the frequency you have to follow for people who hit the recast?

There have been so few that have actually hit the recast... who would be measured like a hundred people in history, something that we have been evidence of.

We can check on and if you have questions feel free to follow-up with Don or Tom or myself directly.

Great, thank you.

Your next question will be from Ron Mandel with GIC

I was just wondering, Tom, about your comments in the outlook for the net interest margin or net interest revenue likely to be down from the adjusted first half level, and obviously, I see the decline in assets you're talking about, but I was wondering if you can talk about the margin and why the margin might not offset almost the asset run?

Well, we're going to have the continued drag of an increase in NPAs, Ron, which gives these folks obviously, right now we're having $12 billion of assets that went up during the yield on, we still haven't fund those, and then as margin [inaudible] incrementally goes non performing, you lose the coupons on it. So that's... that's really the biggest drag.

I guess, I just would have thought that you already have a lot of non performers, so then you have margin improvement this quarter. So, I guess, that's why I was asking the question.

Well, all I can tell you this is our best guess as to what will occur, just wanted to provide now really rosy sort of expectations that we've been hit, this is what we believe.

And in terms of positioning for how rates have changed and how they might change, have you changed your positioning in that regard?

Well, we are relatively neutral through year-end, and then we would be liability sensitive in 2009, and I would say right now, the four incurs are consistently built in, relatively aggressive rate hikes, and therefore we're considerably locked in the current rates because they are just in the core markets. We think the likelihood that rates move a 100 basis points more than that to be relatively modest based on everything we see today.

Okay, thanks.

Sure.

Your next question will be from Betsy Graseck with Morgan Stanley.

Thanks, good morning. On the page 26, when you talk about the $20 billion reduction, I guess just want to confirm that most of that reduction in long-term securities you're anticipating through roll off, is that correct?

Yes, the vast majority would be.

Okay. And then since you're just continuing these various channels of mortgage origination, I just wanted to understand what you are expecting for your total mortgage book, I mean, I'm assuming that you're not... since you're active and trying to renegotiate and restructure some of these loans into more conventional loans. And I think that you are looking over teams some of that's for your balance sheet, I'm just trying to understand how large do you see your mortgage book being over the course of the next year or two?

I'd just offer a general observation, and that is that with respect to the existing mortgage business, it's really going to be focused, it's going to be a customer-centric model serving the needs of the general banking, wealth management, and Wachovia securities customers. Therefore I would anticipate that that would produce much growth in terms of our initiatives as we work with pick-a-pay customers, our primary objective would be to refinance them into, perhaps the government product where the vast majority of those would be securitized. And so, we may end up with some on our portfolio, but in general, I think you can probably for modeling purposes assume that whatever success we have is evidenced by the balance going away from the company.

So you have roughly $120 billion of negative amortization loans. We would, you suggested that we should anticipate that that's primarily and roll off the entire portfolio?

Absolutely.

Okay. So then when you're speaking about the ... have you anticipate the losses within that portfolio of migrating as the portfolio is rolling off.

Well, Jonathan [ph] a pretty good job of giving you a view as to what our future credit expectations are in terms of both charge-off as well as over provisioning through the end of 2009. What I would say is, there is nothing explicitly built in for whatever success we have in working with borrowers to refi them and tell their product. There is always the chance that as we look at a borrower, we would have anticipated a loss, that was going to occur in 2010, we take action today which incurs a credit cost that we experience today. And therefore there is some asymmetry between the reserves we had built and the current credit cost. Alternatively, it's just as likely that we've taken action with a customer that wasn't explicitly provided a foreign reserve and we favor or sell something. So I don't think it's going to be at this point something that causes people to need to model credit cost differently because of our outward actions with customers. And as we experience the customer reaction will that help let people know what it is.

And as you think about that portfolio, rolling off overtime, I mean, how have you thought about the kind of capital requirements for that portfolio relative to a regular loan portfolio where you are building, growing that portfolio overtime? Do you think that the capital requirement as differently?

Well, certainly this portfolio is more capital intensive as evidenced by the credit losses that we are experiencing. In the near-term, I think where we... what we are focused on is building our capital ratios and I think for the foreseeable horizon just growing capital ratios to the greatest extent we can is what we're focused on. And if I mentioned at some point, we will revisit whether redeploying some of the freed up capital is appropriate thing to do. But in the near term you should think of just harboring that capital as the balance sheet declines from that portfolio.

It's Bob Steel. I think too I push pause and buy a bit of time here. One of the things we spend a lot of time talking about is the right allocation of our capital in terms of the asset to support and how to think about that. And that will be a project that we focus on and we'll look forward to reporting into you [ph] in the not too distant future. But you raised a good point and it has our focus.

Okay. And at this stage you haven't changed your capital targets, is that correct?

No.

Okay. All right, thank you.

Ladies and gentle, we have reached the allotted time for question. Your last question will be from Gerard Cassidy with RBC Capital Markets.

Thank you. Good morning. Don, can you us some color on the non-performing assets in the commercial, finance and agriculture line. Then also in the commercial real estate non-performers of 2.2 billion, what percentage were construction loans versus commercial real estate mortgages?

On the commercial real estate, the vast majority of the commercial real estate non-performs would be out of that 11, $12 billion builder residential related books. So those would be in the category of loan to builders or land. So mostly you can think about it in the construction arena, but land would also be a fairly significant component as well. And then on the remainder of the commercial... of the C&I side, there is really... part of your question is there's really not an underlying pattern or theme to the credits that we have... had go non-perform from an industry standpoint. They tend to be a little more one-off, maybe a little more oriented toward credits that have some tie to real estate such has build and supply and companies that service the real estate business, but there is not really a discernible underlying kind of industry [inaudible].

And sticking with the commercial loans on the NPAs. Can you give us any color, I believe the shared national credit exam has just ended. Any color on what you're hearing from that?

My sense is that the OCC and the system and the Fed have taken a very, very thorough look given just concerns that they have about the economy and where the credit cycle is unfolding and so, pretty thorough review. We are very pleased with the outcomes of our portfolio, and I guess it will be some time in the third quarter, maybe early third quarter when they typically released the overall industry portfolio statistics. So it will be interesting to see what those look like.

And then finally, Bob obviously you've hit the ground running. And are you planning to do any long-term strategic planning in the next three to six months how to position Wachovia for the future and should we expect some sort of announcement regarding that at some point in the future?

Well I think you are leading me in the right direction. I think that it has been great to get here and to work with the team. And our focus as I have said near-term is to deal with the challenged assets, which we accept responsibility for and to work through those issues, and ensure that our balance sheet is strong and that we're marshalling our capital in the right way. The second issue is to make sure we focus on these very, very strong of core franchises that we have, which are doing pretty darn well. And we really want to focus on our customers, and our clients and our colleagues to make sure we continue to execute very strongly in those areas. Once we get through that stage, we are all looking forward here at Wachovia to sitting down and looking at what we have learned, and where we should position the company for the longer-term. And as I have said earlier, we'll be very open and transparent as we work those issues and look forward to speaking to you as they become more clear.

Thank you.

Great. I think that's it and so again let me just say thanks to everyone for providing your time. I know how busy you are especially on a day like today with so many different calls and comments. This was an important call for Wachovia, and we appreciate you giving attention to all the things we are working so hard on. Thank you so very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.