Wachovia Bank is no more

[J]

FDIC link

Citigroup Inc. to Acquire Banking Operations of Wachovia
FDIC, Federal Reserve and Treasury Agree to Provide Open Bank Assistance to Protect Depositors

FOR IMMEDIATE RELEASE
September 29, 2008
Media Contact:
Andrew Gray (202) 898-7192
angray@fdic.gov

Citigroup Inc. will acquire the banking operations of Wachovia Corporation; Charlotte, North Carolina, in a transaction facilitated by the Federal Deposit Insurance Corporation and concurred with by the Board of Governors of the Federal Reserve and the Secretary of the Treasury in consultation with the President. All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.

"For Wachovia customers, today's action will ensure seamless continuity of service from their bank and full protection for all of their deposits." said FDIC Chairman Sheila C. Bair. "There will be no interruption in services and bank customers should expect business as usual."

Citigroup Inc. will acquire the bulk of Wachovia's assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.

In consultation with the President, the Secretary of the Treasury on the recommendation of the Federal Reserve and FDIC determined that open bank assistance was necessary to avoid serious adverse effects on economic conditions and financial stability.

"On the whole, the commercial banking system in the United States remains well capitalized. This morning's decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury," Bair said. "This action was necessary to maintain confidence in the banking industry given current financial market conditions."

Wachovia customers with questions should call their normal banking representative, service center, 1-800-922-4684 or visit www.wachovia.com. The FDIC's consumer hotline is 1-877-ASK-FDIC (1-877-275-3342) or visit www.fdic.gov.

Well, I guess "Wachovia" is the answer to "how many government officials does it take to sell a bank?"

[lukexcom]

So by "seamless continuity" they mean that there will be no annoyances such as new bank routing numbers?

[Count Chocula]

WaMu, now Wachovia. Is the Fed starting at the bottom of the alphabet and working their way up?

I can't wait to see how the numbers shake out on this one. At first read, it looks like a $200 billion+ bluebird for Citigroup.

[K. A. Pital]

I used to have a Wachovia card when I was in the US of A.

Heh, another one bites the dust...

[Alferd Packer]

My wife is with Wamu, I'm with Wachovia. Boy, we sure know how to pick 'em, huh?

All I can say is I'm glad we were able to pay our down payment for our house before the poop hit the paddles with these banks.

[The Kernel]

You have to admit, these "bank failures" are happening so smoothly that one might think there are just a series of high profile mergers going on in the last few weeks. The FDIC should be commended for handling these as well as they have.

[RedImperator]

Maybe they could change the name of the Wachovia Center back to the First Union Center. I know First Union doesn't exist anymore, but the FU Center was the best name for a Philadelphia hockey arena ever.

[Fingolfin_Noldor]

You have to admit, these "bank failures" are happening so smoothly that one might think there are just a series of high profile mergers going on in the last few weeks. The FDIC should be commended for handling these as well as they have.

Well, given that they more than doubled their manning, and hired back lots of old experienced accountants and bankers, I would say, they did their job fairly well and smoothly.

[Surlethe]

You have to admit, these "bank failures" are happening so smoothly that one might think there are just a series of high profile mergers going on in the last few weeks. The FDIC should be commended for handling these as well as they have.

Absolutely. They're making an excellent case for regulation helping the economy; imagine what a chain of actual bank failures would have done to the financial system if the FDIC didn't exist.

[aerius]

My wife is with Wamu, I'm with Wachovia. Boy, we sure know how to pick 'em, huh?

Sounds like one of my family friends. He worked with several tech companies some years back, and every time he went to work for a new company their stock would tank hard within 2-3 months. My parents would jokingly ask which company he planned on working for next so they could stay far away from them.

[Solauren]

You have to admit, these "bank failures" are happening so smoothly that one might think there are just a series of high profile mergers going on in the last few weeks. The FDIC should be commended for handling these as well as they have.

Absolutely. They're making an excellent case for regulation helping the economy; imagine what a chain of actual bank failures would have done to the financial system if the FDIC didn't exist.

This could be expanded to the retail sector as well. However, that's fairly self-regulating with 'oh look, my competitor is going to tank, I'll buy him up and run it my way'.

[J]

You have to admit, these "bank failures" are happening so smoothly that one might think there are just a series of high profile mergers going on in the last few weeks. The FDIC should be commended for handling these as well as they have.

No question, the FDIC has done a fine job of handling the failures.

But the 3rd paragraph of the press release worries me. We don't know what Wachovia's loan losses will be, seeing how they managed to lose nearly $9 billion in a single quarter it's pretty safe to say "substantial" is the word I'm looking for. Worst case, the FDIC ends up eating a fair amount of Wachovia's loan losses and runs itself low on funds when the next big failure(s) happens.

[The Kernel]

No question, the FDIC has done a fine job of handling the failures.

But the 3rd paragraph of the press release worries me. We don't know what Wachovia's loan losses will be, seeing how they managed to lose nearly $9 billion in a single quarter it's pretty safe to say "substantial" is the word I'm looking for. Worst case, the FDIC ends up eating a fair amount of Wachovia's loan losses and runs itself low on funds when the next big failure(s) happens.

It doesn't look too bad to me. Basically Citi is willing to take a 13.5% loss on these assets and the FDIC is providing insurance beyond that. Could those loans really be so much junk that they would go beyond 86% return rate? Most first level collections accounts have better returns than that.

My guess (and I admit I'm trying to avoid being a cynic) is that Citigroup wants to peg an absolute number on the writedown of this debt for accounting reasons so they can start posting stellar numbers next quarter and drive their stock up. This is a perfectly acceptable practice.

I suppose it's POSSIBLE that these assets are bigger junk than that, but you'd hope that the FDIC would be smarter than to open itself up to that sort of exposure.

[J]

Well, Wachovia has around $120 billion in Alt-A loans along with subprime holdings and computer approved "prime" mortgages which are anything but. The recovery rate on subprime & alt-a defaults to date is around 50-65% and falling, since most of Wachovia's loans are in real estate bubble areas thanks to their acquisition of Golden West the recovery value will be on the lower end of the scale. If 2/3 or more of WB's alt-a portfolio defaults, and I don't want to guess how plausible that is, the cushion is gone and losses will be taken by the FDIC.

Of course this neglects the other loans and any MBSs, CDOs and who knows what other alphabet soup papers which they may hold on their balance sheets. Will Citi blow through the $42 billion set aside to cover WB's loan losses? I don't know, and there isn't enough information available to make a guess.

[The Kernel]

Well, Wachovia has around $120 billion in Alt-A loans along with subprime holdings and computer approved "prime" mortgages which are anything but. The recovery rate on subprime & alt-a defaults to date is around 50-65% and falling, since most of Wachovia's loans are in real estate bubble areas thanks to their acquisition of Golden West the recovery value will be on the lower end of the scale. If 2/3 or more of WB's alt-a portfolio defaults, and I don't want to guess how plausible that is, the cushion is gone and losses will be taken by the FDIC.

Of course this neglects the other loans and any MBSs, CDOs and who knows what other alphabet soup papers which they may hold on their balance sheets. Will Citi blow through the $42 billion set aside to cover WB's loan losses? I don't know, and there isn't enough information available to make a guess.

Doesn't this ignore though that for every default Citigroup will have an asset in its place? It might be tough to sell these houses in this climate, but they still have to value them at market rate do they not?

I admit, I'm a little sketchy on how this kind of valuing occurs as I'm used to following economics from a hard asset or IP perspective and all this MBS crap is throwing my mind for a mental loop.

[Elfdart]

Aw shit, my grandmother has an account with them.

[Crayz9000]

My wife is with Wamu, I'm with Wachovia. Boy, we sure know how to pick 'em, huh?

All I can say is I'm glad we were able to pay our down payment for our house before the poop hit the paddles with these banks.

I'm just glad I decided to wait it out. It's funny, as late as 6 months ago we were being told that with home prices falling 1-2% here in Southern California it was a good time to buy... Boy, am I glad I saw right through that steaming pile of horseshit.

Although all my accounts are with WaMu (now JPMorgan Chase)... Here's to hoping they keep the relaxed retail attitude of WaMu and don't try to go for the Wells Fargo "here's a fee to cover the other fee" approach.

[TrailerParkJawa]

My wife is with Wamu, I'm with Wachovia. Boy, we sure know how to pick 'em, huh?

All I can say is I'm glad we were able to pay our down payment for our house before the poop hit the paddles with these banks.

One of the girls at my gym has an account with both. She is efficient. :p

[GrandMasterTerwynn]

In an interesting twist: Wells Fargo buys Wachovia for $15 billion!

Wells Fargo to buy Wachovia
Stock swap, valued at $15 billion, sidesteps FDIC and trumps Citigroup offer
By Greg Morcroft & Sam Mamudi, MarketWatch
Last update: 12:34 p.m. EDT Oct. 3, 2008
NEW YORK (MarketWatch) -- Wells Fargo & Co. and Wachovia Corp. have agreed on a $15 billion merger that highlights the buyer's strong balance sheet and aspirations to expand its presence in the eastern U.S., the companies said Friday.
"This morning's announcement indicates that there are still buyers, even in this environment, for attractive franchises like Wachovia," Morgan Keegan banking analysts said.
"Overall, this is good for the bank M&A environment, especially for banks with attractive banking footprints. But we would caution that there is only one Wells Fargo out there, and not many other banks that are in a position to make an acquisition like this," they wrote in a research report.
The bold move casts doubt on the status of a transaction between Wachovia and Citigroup Inc. involving the former's banking and mortgage businesses announced last Monday.
Citigroup, however, issued a strongly worded statement contesting the new deal. See full story.
The Wachovia-Citigroup deal, engineered with the help of the Federal Deposit Insurance Corp., carries a price tag of $2.1 billion in stock. Wachovia said it had been talking about an FDIC-supervised deal with Citigroup that would have included government aid.
For its part, Wells Fargo said early Friday that it would pay 0.1991 of a share of common stock in exchange for each common share of Charlotte, N.C.-based Wachovia -- a ratio that values Wachovia at $7 a share based on Wells Fargo's Thursday closing price and implies a hefty 79% premium.
"This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," said Wachovia CEO Robert Steel in a press release.
"Economically and risk-wise, we think this is something that leads to a better organization," said Richard Kovacevich, chairman of Wells Fargo, on a conference call. While it's too early to talk about management structure, he said, the post-merger firm would carry the Wells Fargo name.
Wachovia's stock, which closed at $3.91 on Thursday, soared 74% in midday trading, changing hands at $6.80.
Shares of Well Fargo also rose, up nearly 6% to $37.13, as Citigroup fell 10%, retreating to $20.25.
Headed to court?
Wachovia said its board approved Wells Fargo's offer Thursday night.
Not surprisingly, Citigroup executives are very upset with the developments, according to a source familiar with the situation. The source said Wells Fargo jumped back into its pursuit of Wachovia after getting wind of the deal Citigroup was hammering out.
Perhaps more importantly, the source said, favorable tax-accounting rules made the deal very attractive.
Also, according to the source, terms of the Citigroup deal included no breakup fee that would have made it more costly for Wachovia to break off discussions or a deal.
In a statement, Citigroup said, "Wachovia's agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia. In addition, Wells Fargo's conduct constitutes tortious interference."
Steel said during the conference call that "controversies" about any binding agreements with Citi will be "addressed in the appropriate way." He declined to comment further.
San Francisco-based Wells Fargo, one of the nation's largest mortgage lenders, has mostly avoided the crushing impact of the collapsing real-estate market and subsequent credit crisis by eschewing some of the riskiest lending practices that wrecked rivals and other financial-services firms.
Wells Fargo said it will take $10 billion in charges to put Wachovia's troubled assets on its own balance sheet at fair value, while issuing up to $20 billion of securities, primarily in the form of equity, to beef up its balance sheet.
The deal will see estimated losses in asset portfolios of $74 billion, said Howard Atkins, the chief financial officer of Well Fargo, in Friday's conference call.
Wachovia and Wells Fargo pointed out that unlike the merger of Washington Mutual with J.P. Morgan Chase & Co. earlier this week, their deal was not brokered by the FDIC.
The Wells Fargo deal appears to benefit the FDIC by getting it off the hook to protect Citigroup against losses on $312 billion of Wachovia's more troubled assets -- including more than $100 billion of option adjustable-rate mortgages acquired in Wachovia's purchase of Golden West Financial at the peak of the housing boom in 2006.
"The FDIC stands behind its previously announced agreement with Citigroup," said Sheila Blair, FDIC chairman, in a statement.
The agency "will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest," she said.
Also Friday, the Federal Reserve issued a cautious statement, saying it has yet to review the Wells Fargo proposal "and the issues that it raises." In contrast, the Fed said that the competing Citigroup proposal to acquire Wachovia has "undergone extensive review" by regulators.
Also as a result of the deal, Wells Fargo will get $448 billion of bank deposits -- a big, new source of stable funding.
The company also said that the firms, on a combined basis, will operate 10,761 locations in 39 states.
"This acquisition comfortably exceeds all our financial requirements," said Atkins in a release.
"This is a unique opportunity to expand both our community banking and wholesale banking presence in current markets and enter some new markets by acquiring another full-service financial services retail banking company with a strong culture of customer service and community involvement very similar to ours."
A key feature of the deal specifies that Wells Fargo would record Wachovia's credit-impaired assets at fair value. That's important for two reasons.
First, it suggests that Wells Fargo's balance sheet is strong enough to withstand write-downs it will have to take to make the acquisition.
Second, it's a vote of confidence for industry players and regulators that favor maintaining so-called mark-to-market rules.
"Wells Fargo expects to incur merger and integration charges of approximately $10 billion. To maintain its strong capital position, Wells Fargo intends to issue up to $20 billion of new Wells Fargo securities, primarily common stock," the company said.

Well, this is just . . . interesting. Is it time for me to pull out my Wells Fargo savings accounts and hide them under the mattress?

[Rogue 9]

No. Wells Fargo knows what it's doing; if something goes wrong now they'll get bailed out, and when this is over they'll hold a large chunk of a suddenly much more concentrated banking industry. We're going to be looking at a series of monopolies when this blows over.

[Beowulf]

What I've heard about this, gives the impression that WF has some clue as to what it's doing.

[Uraniun235]

Is it time for me to pull out my Wells Fargo savings accounts and hide them under the mattress?

No, now's the time to pull them and spend it all on ammunition, rations, alcohol, and printed pornography.


"Seriously? You still buy skin rags?"
"Think about it. The power goes out, who holds all the cards?"

[J]

We don't know what Wachovia's loan losses will be, seeing how they managed to lose nearly $9 billion in a single quarter it's pretty safe to say "substantial" is the word I'm looking for. Worst case, the FDIC ends up eating a fair amount of Wachovia's loan losses and runs itself low on funds when the next big failure(s) happens.

And now we all know.

Marketwatch Link

Wells Fargo: Losses from Wachovia assets to be $74 billion
By Marshall Eckblad
Last update: 11:28 a.m. EDT Oct. 3, 2008

NEW YORK (MarketWatch) -- Wells Fargo & Co. said on Friday that it expects to face about $74 billion in losses and write-downs when it acquires Wachovia Corp. and its troubled portfolios loans of loans.
Wells Fargo's top executives made the comments during a conference call with investors, and said the deal will close in this year's fourth quarter.

Wells Fargo Chief Financial Officer Howard Atkins said his company doesn't know yet how many of those losses and write-downs it will take up front when the deal closes, and how many it will tack on to earnings reports over the coming quarters.

Atkins said the combined Tier 1 capital ratio of the combined companies will be about 7.5% - or lower than Wells Fargo's current Tier 1 ration of 8.2%. Tier 1 capital ratios are a key measure of banks' financial health, and regulators generally require that banks maintain a ratio higher than 6%.
Until Friday morning, Citigroup Inc. had an exclusive deal to purchase Wachovia's mammoth retail banking business for $2.1 billion in stock. Investors were therefore surprised to learn of Wachovia's new deal with Wells Fargo.

There are now two competing deals to purchase Wachovia, and the situation is already showing the makings for a legal fight among heavyweights.

Mere minutes after the end of Wells Fargo's conference call to discuss the deal, Citigroup released a stinging statement addressing Wachovia's deal with Wells Fargo. The statement referred in title to "Wachovia's Breach of Exclusivity Agreement" and said "Citi was negotiating in good faith and nearly completed the definitive agreements required to consummate the Citi/Wachovia transaction that was announced on Monday."

It remains unclear whether Citigroup has a signed or binding deal to purchase Wachovia, since Citi hadn't yet released complete details of Monday's agreement.

"Citi has demanded that Wachovia and Wells Fargo terminate and not proceed with any proposed transaction," the statement said. "Citi has substantial legal rights regarding Wachovia and this transaction."
Regulators who orchestrated Citi's deal with Wachovia were also quick to release comments.

At the same time that Wells Fargo was holding its conference call, three federal banking regulators, including the Federal Reserve, released statements, with the Fed saying that it hadn't yet reviewed Wachovia's deal with Wells Fargo.

So if the Citibank deal had gone through the FDIC would be on the hook for $20 billion or so. That's about 40-45% of all their remaining assets. Ouch.

[J]

That's going to leave a mark.

AP link

Wachovia reports $23.9B loss for 3Q
By SARA LEPRO – 2 hours ago

NEW YORK (AP) — Wachovia Corp. on Wednesday reported a staggering $24 billion loss as it took a goodwill impairment charge of nearly $19 billion ahead of its acquisition by Wells Fargo & Co.

The Charlotte, N.C.-based bank reported a net loss after paying preferred dividends of $23.89 billion, or $11.18 per share, in the period ended Sept. 30, compared with earnings of $1.62 billion, or 85 cents per share, a year earlier.

Excluding goodwill impairment of $18.7 billion and merger-related and restructuring expense of $414 million, the bank lost $4.76 billion, or $2.23 per share.

Analysts polled by Thomson Reuters, on average, had expected earnings of 2 cents per share. Analyst estimates typically exclude items.

The bank said its acquisition by Wells Fargo, in an all-stock deal currently valued at about $14 billion, is on track to close in the fourth quarter.

"Wachovia's third-quarter results were very much in line with our expectations," said Wells Fargo President and Chief Executive John Stumpf in a statement. "We're more encouraged than ever by what we've seen in their franchise, and we're pleased that Wachovia's team continues to focus on serving customers."

During the quarter, Wachovia set aside a $6.63 billion provision for credit losses, including $3.4 billion to build its reserves to cover losses in its troubled Pick-a-Pay mortgage portfolio.

Net interest income, the difference between how much it costs a bank to borrow money and how much it receives from lending money to customers, rose 10 percent to $5.04 billion from a year earlier. Total average loans grew 11 percent to $478.49 billion, representing 20 percent growth in average commercial loans and 6 percent growth in average consumer loans.

Average core deposit growth of 4 percent was driven by certificates of deposits and money market accounts, the bank said.

Net charge offs, or loans written off as unpaid, totaled $1.87 billion, or 1.57 percent of average net loans on an annualized basis. Total non-performing assets, including loans held for sale, were $15 billion.

Fee and other income dropped 75 percent to $733 million from nearly $3 billion in the prior-year quarter, due to losses on investments.

The bank's Tier 1 capital ratio, essentially a measure of a company's cash versus debt, totaled 7.4 percent at the end of the quarter, down from 8 percent at the end of the second quarter.

Wachovia -- among the hardest hit by the ongoing mortgage crisis -- recently found itself at the center of a bitter battle between two of the country's largest banks, as Citigroup Inc. and San Francisco-based Wells Fargo fought for its lucrative deposits.

Shortly after the bank was mentioned as a possible merger partner for Morgan Stanley -- which had just received approval to begin taking deposits -- Citigroup agreed to buy Wachovia's banking operations for $2.1 billion in a deal brokered by the Federal Deposit Insurance Corp.

Only four days later, Wells Fargo stunned Citigroup by announcing that Wachovia's board had agreed to a $14 billion all-stock offer. Originally, the deal was valued at $15.1 billion, or $7 a share, but Wells Fargo stock has declined since it was announced. The deal did not hinge on any government support.

After the fight for Wachovia moved to court, the parties agreed to a legal standstill at the urging of federal regulators. But following several days of negotiations, Citigroup walked away from the deal after the suitors failed to reach an agreement over how to split up Wachovia.

While Citigroup decided not to block the Wells Fargo-Wachovia deal, the bank is seeking $60 billion in damages for alleged interference in its agreement with Wachovia.

The deal is still subject to a vote by Wachovia shareholders.

Wachovia had been struggling for some time, but the rush to a deal was prompted by a $5 billion run on deposits in late September, sparked by the failure of West Coast rival Washington Mutual Inc., according to court documents.

Wachovia's problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion, at the height of the nation's housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Pay loans, Golden West's specialty, which let borrowers skip some payments.

Wachovia shares fell 3 cents to $6.06 in pre-market trading. Wachovia has lost 84 percent of its market value in 2008.

[montypython]

I remember seeing a color-coded data sheet some months ago on the relative financial health of various banks in the US, Wachovia was listed yellow (red being serious danger of default); the sub-prime lending mess and the growing credit card crisis didn't make this development a surprise, but how fast it occurred was quicker than I had expected.