Wachovia Bank Folds Amidst Historic Wall St. Blood Bath

September 29, 2008

Wachovia Bank, Based in Charlotte, North Carolina, Collapses and Is Bought by Citigroup

Rumors that swirled over the weekend regarding a potential collapse of Wachovia Corp. (NYSE: WB) have proven true. As Wall St. plunged nearly 800 points to a historic new low following the U.S. House of Representatives failure to pass the largest financial bailout bill since the Great Depression, the Charlotte, North Carolina-based banking giant, the fourth-largest bank by assets in the United States, is being rescued bought out by Citigroup (NYSE: C) Inc., the biggest U.S. bank by assets, for the bargain basement price of about $1.6 billion. Wachovia Corp. bank shares, which reached a 52-week high of $52.25, sank to $10 a share last week on the New York Stock Exchange (NYSE) and opened at 95 cents in Monday morning trading. Wachovia trading was halted. Wachovia stock, which has lost 83 percent of its value in the last two years (as of last week), collapsed due to overdue mortgages and the subprime mortgage crisis.

In the all-stock deal, Citigroup will pay about $1 a share for Wachovia, halve its own dividends, raise $10 billion in capital to take on Wachovia debt, and absorb up to $42 billion of Wachovia’s $312 billion in bad loans. The Federal Deposit Insurance Corportation (FDIC), which helped broker the Wachovia takeover, said it will take on losses beyond $42 billion, in exchange for $12 billion in preferred stock and warrants.

Wachovia Bank CEO Robert Steel, Former Under Secretary of the U.S. Treasury

Pinocchio Wachovia CEO Robert Steel, who was Under Secretary of the Treasury for Domestic Finance from October 2006 to July 2008, last week sent a reassuring memo to Wachovia employees telling them that the bank was sound and more financially diversified than the failed Seattle-based Washington Mutual (WaMu). According to Bloomberg, the memo included “a set of questions and answers for employees who might have to answer queries from worried customers, such as: ‘Does all the recent news put Wachovia at risk?’ and ‘How is Wachovia different’ from Lehman, Bear Stearns and WaMu?” (Answer: No difference.)


Gary Townsend of Hill-Townsend Capital in Chevy Chase, Maryland, told Bloomberg: “The problem must have occurred last week with their ability to continue to attract and hold deposits after the failure of Washington Mutual…On Thursday and Friday, [Wachovia] must have had a large run on the bank.” Wachovia operated in 21 states and enjoyed a dominant market position in the Southeast and in the Mid-Atlantic states. With about 20,000 employees, Wachovia was the largest private employer in Charlotte, NC. Corporate headquarters will remain in Charlotte. The gleaming Wachovia Center was the pride and joy of Charlotte, encompassing two full city blocks in a major mixed-use complex in the heart of downtown Charlotte.

Wachovia Bank Locations Across the United States

Wachovia is the latest casualty in the subprime mortgage crisis which bankrupted the venerable Lehman Brothers Holdings, Inc. and WaMu, and led to the bailouts of Merrill Lynch & Co. and Bear Stearns. The buyout gives Citigroup about 4,300 branches and offices in 21 states, with more than $600 billion in deposits — or a 9.8 percent share of the total U.S. banking market. Globally, Citigroup’s total deposits will be $1.3 trillion, or about $350 billion more in deposits than JPMorgan Chase & Co. has.

Read about the March meltdown of big, bad Bear Stearns.

Photo credit: ChildressKlein.com

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