Wachovia reportedly in talks with Citigroup as shares plummet

Posted September 26, 2008

— Shares in troubled financial giant Wachovia (NYSE: WB) plunged nearly 39 percent Friday afternoon as Wall Street awaited news on a potential bailout from Washington and concerns mounted about the nation’s banking system.

The New York Times reported Friday that the Charlotte-based bank has started talking with Citigroup Inc. about a possible merger.

"If that happens, then would we lose, potentially, the headquarters of Wachovia in Charlotte to New York City? If that were to occur then that would be a blow, I think, to North Carolina's status as a financial services center," North Carolina State University economist Michael Walden said.

On Thursday night, federal regulators shut down Washington Mutual and sold its assets to JP Morgan Chase & Co. in what is called the largest bank failure in U.S. history.

News services Dow Jones and Bloomberg, as well as Barron’s, reported Friday that Wachovia was undergoing similar scrutiny by investors. Mounting concerns drove Wachovia’s share price down $3.70, a loss of 27 percent, to close at $10.

Shares surged up $1.60 in the last half-hour of trading on speculation of a possible deal with Citigroup.

The plunge in Wachovia’s share price could make the bank a takeover target, Walden said.

“Depositors should be OK. Shareholders should worry,” Walden told “Charlotte should be concerned because the lower value increases the chances of a takeover."

Federal insurance covers traditional bank accounts of $100,000 or less.

"If there are enough people who lose confidence because of these rumors, the rumors can be self-propagating," said Steven Schwarcz, a professor of law and business at Duke University.

The share-price plunge led Wachovia’s new chief executive officer, Robert Steel, to issue a statement in an attempt to reassure shareholders and customers.

“Our core franchises are extremely valuable and continue to operate well relative to our competition,” he wrote. “We remain optimistic that our leadership in Washington will provide comfort to the markets with a plan to stabilize the housing and short-term funding markets.”

Wachovia posted the statement on its Web site before Wall Street closed trading for the day.

Before Steel’s statement, one Wall Street analyst cut his target price of Wachovia shares to $11 from $16.

"We feel it is likely that Wachovia will need to issue equity to provide greater reassurance about its liquidity and solvency,'' Mike Mayo, an analyst at Deutsche Bank AG, told Bloomberg Thursday.

Wire services closely documented Wachovia’s share-price tumble.

“The seizure of Washington Mutual Inc. is quickly becoming a problem for Wachovia Corp,” wrote Dow Jones.

"Wachovia is obviously trading down in sympathy," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners, in a telephone interview with The Associated Press. "Investors are looking for who else out there has a large exposure to mortgage assets that potentially could be written down to a significant degree."

Wachovia's current 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-Payment loans, Golden West's specialty, which let borrowers skip some payments.

"The fundamentals at Wachovia right now are not real strong. There is no question about that," said Joe Keetle, senior wealth manager at Dawson Wealth Management, who previously spent 25 years at Wachovia. "But the reaction today has more to do with WaMu going under and waiting for Congress to pass a bill. It's more emotional reaction today."

The home-mortgage crisis is at the root of the unfolding financial meltdown on Wall Street that the Bush Administration is seeking to bail out with a $700 billion package.

“We are in a financial situation that we haven’t seen in many, many decades. I think that is why this so-called bail out is important because I think the federal government has tried many methods to get the financial system back in order and it has not worked,” Walden said.

Barron's described the billions of dollars in adjustable-rate home mortgages on Wachovia's books as “among the least-liquid securities in the credit markets.”

The bank, which ousted its chief executive officer in July as the home mortgage crisis mounted, also faces increasing costs for insurance to cover its own debt.

Over the past year, Wachovia shares have lost some 80 percent of their value.

Still, although the feeling on Wall Street is that Wachovia is hurting, it's not in the same dire straights as WaMu had been before it was seized by the FDIC. Wachovia has even been mentioned as a possible merger partner for Morgan Stanley.

"It has more mortgage-backed securities than some other banks, but is certainly not the worst off in that regard," Schwarcz said.

The bank may need to raise additional capital or speed up its turnaround plans in some way to soothe investors in the short-term, analysts said.


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  • imback Sep 26, 2008

    "You speaking of how agressively BoA targeted the illegals to get them to open accounts and take loans. "
    I brought this up in another forum, and of course, some didnt want to hear it.

    Funny how soon people choose to forget. Banks were all over this new untapped market. And of course, La Raza loved the idea.
    If the American taxpayer is going to eat it for these bad loans, everythign should be on the table. The idea that banks are giving mortgages to illegals should make our heads spin off.,2933,166959,00.html

  • Snoopy Gal Sep 26, 2008

    BIGCHEESECAMATO - you sure have a negative attitude towards bankers. I happen to work at a competitor of Wachovia's and I can tell you that all bankers do not work 9-5. You have no idea what hours some people in the banking industry put in. As I said, I work at a competitor and I am not cheering that things are not looking good for them right now. Hopefully they can turn things around. It will be better for all of us the more that survive and do not fail. As our CEO said this week, I hope this bailout does not punish those of us who have remained sound and not got into the sub-prime mess.

  • John Q Public Sep 26, 2008

    Sad, but what did they expect?

  • Steven Sep 26, 2008

    For those that think this is some sort of good thing....Do you really want to see the average person that works there lose their job over this? Remember it's a locally grown NC company too. Anyone that wishes to see it fail should think about those couple of things. I hope none of you end up in the same situation down the road. If you do, you probably wouldn't like it if you have people cheering for your failure. Think about that next time.

  • pingmanreturns Sep 26, 2008

    Not a fan of Wachovia. Several bad experiences so no tears on my face.

  • BIGCHEESECAMATO Sep 26, 2008

    Guess all you bank people that think the world is 9 to 5 Monday thru Friday will soon find that is will be 6am to midnight working on weekends as well. That little party life of bankers is gone with the wind. Its now a retail service like everything else and you relye on serving the public at our hours not your little convenience hours....

  • Sep 26, 2008

    Get to the side of the ship and ready to jump!

  • Dark_Horse Sep 26, 2008

    This country is becoming more and more socialistic every day. We will have one central bank soon. Unfortunately, we won't have centralized health care any time soon since that industry is so lucrative and has deep pockets for their lobbyists.

  • james27613 Sep 26, 2008

    btw, it is not the guy or gal at the branh office that is the problem at wachovia, wamu, boa, etc. but the big shot wanna be types that did this to everyone else.

    I worked in retail banking back in the early 80's,
    our vp would do a loan with a handshake, signature on the papers, and a wink to the loan teller, 'Prime plus a quarter' he says. And guess what, those loans were always paid back on time or earlier. Now everything is centralized and that is the price we all will pay for this mess.

    Not everyone should own their own home, if you can't pay your bills then you should not be in a home load period.

    Problem is all these loans went bad because nobody thought GAS would be almost double the price when the loans were made,
    grocery bills higher, health care higher and lets not forget about the car loan that these people are in upside down !
    FYI: Upside Down means you owe bank more then the car is worth !
    'We will pay off your trade, just bring the payment book

  • james27613 Sep 26, 2008

    Former WB CEO just had to be like good old boy Hugh McColl
    and attempt to build an empire like BOA (aka nations bank).

    Problem is he bought that bank out in California with all the
    bad loans (liar loans, ie no doc false doc) paperwork.

    Lets track down the men and women that made these loans as well as those that applied and were granted the loans and

    IF Prison was good enough for milken, boesky, stewart, ebbers,
    etc, then we can make room for these other criminals.

    Govt must take steps to put a stop to these RHODIUM parachutes, not platinum or gold by any means. We have men and women in our military with nuclear authority and they do not make mega millions !

    Our unborn grand kids will be footing the bill for this one.

    I also feel for those at enron, worldcom, etc as well as our
    wall st firms and banks that will now loose their jobs and be on the unemployment lines. That is the real tragedy.