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Wachovia Corporation an acquisition machine about to collapse- for sale

By Amarendra Bhushan for CEOWORLD Magazine Updated:September 27, 2008

I believe it is the loss of public confidence and the bad press that will do them in. It seems that another bank will go down sooner or later. The Wachovia Corporation was formed through a series of mergers over the years that not only made it one of the country’s largest financial institutions, but earned it a reputation as an acquisition machine. This did not happen overnight. Wachovia Corp.’s one of the more troubled big U.S. banks suitors may use a style used by JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon last week: Wait to see whether regulators will seize the bank, then buy the best assets and let the government sort out the rest, according to analysts. Citigroup Inc., Wells Fargo & Co. and Banco Santander SA are in preliminary talks with potential suitors with Wachovia. They’re part of the same group that passed on a chance to buy Washington Mutual Inc., leaving JPMorgan to buy WaMu for $1.9 billion, a fraction of its previous offer in March.

At least some analysts believe it. The bidders may try that tactic again at Charlotte, North Carolina-based Wachovia following its 27 percent plunge, according to analysts at Goldman Sachs Group Inc. and Egan-Jones Ratings Co. They may get help from regulators, who said the U.S. benefited from seizing and selling WaMu because the Federal Deposit Insurance Corp. didn’t have to tap its $45 billion insurance fund. WaMu, the nation’s largest thrift, became the nation’s largest-ever bank failure. “Washington Mutual showed that one of the big ones can go down, and if you are looking at who else in the top 10 is facing the most pressure, Wachovia is right there,” Stan Smith, a banking professor at the University of Central Florida in Orlando, said.

JP Morgan is paying $1.9bn to the Federal Deposit Insurance Corporation (FDIC) for all deposits, assets and certain liabilities of WaMu’s banking operations in a deal brokered by the American government. Under the deal, JP Morgan will not acquire claims by equity, subordinated and senior debt holders, the FDIC said. JP Morgan is offering 247m shares at $40.50 in the fundraising, plus potentially 37m more shares if there is demand. JP Morgan shares rose 91 cents to $44.37. JP Morgan has long had its eyes on the failed bank’s branch network in California, Florida and Washington state. JP Morgan said the deal would add $176bn in mortgage-related assets and would be “marking down the acquired loan portfolio by about $31bn” – a figure that could change if the US government succeeds with its $700bn bail-out. Together, the two banks will have more than $900bn of customer deposits.

A spokeswoman for Wachovia, Christie Phillips-Brown, said: “We are aggressively addressing our challenges and are working to strategically strengthen and manage capital and liquidity in this challenging environment.” The bank, she added, expects “that the Treasury plan under consideration by Congress is a constructive and important step toward restoring confidence and stability in our financial system.” “The Treasury Department plan will not prevent more bank failures,” said Chip MacDonald, a lawyer who advises banks at the law firm Jones Day. “The plan proposes to make purchases based on market prices, which are likely to be at a loss to the sellers. Such losses will deplete the sellers’ capital, which only strongly capitalized institutions can absorb without raising additional capital or a merging with a stronger bank.”

If Wachovia and Citi tie up it may be like to rocks trying to cling to each other to float in the ocean – it ain’t gonna happen. wachovia will not be sold for at least 18 months in my opinion. Unlike Wamu, Wachovia’s capital ratios are not even close to being impaired. So not need for a rescue like at Wamu from a regulatory point of view. but, you can’t put Wachovia Corporation in the same boat as WaMu. Two very different organizations. WaMu was nothing but retail deposits and retail loans – maybe a few small biz activities thrown in for good measure. If the bail-out goes forward (which it looks like it will), the competition between Santander, Citi and Wells Fargo could also be good for Wachovia Corporation share price.

Which means…?
Please, please, please – Cramer be right!!

ROBERT K. STEEL
President and CEO, Wachovia Corporation

Previous Positions:

Under Secretary, Domestic Finance, U.S. Department of the Treasury (2006 – 2008)
Senior Fellow, John F. Kennedy School of Government, Harvard University (2004 – 2006)
Goldman Sachs Group, Inc. (1976 – 2004)
o Advisory Director and Non-Executive Chairman, Securities
o Vice Chairman; Co-Head, Equities Division and Fixed Income, Currency and Commodities Division
o Managing Director and Head, Equities Division, Goldman Sachs Equities Europe
o Co-Chief Operating Officer, Equities Division
o Head, Equities Division, New York
o Partner
o Managing Director and Co-Head, Equity Sales and Trading
o Individual and Institutional Sales Person
Education: Bachelor’s in history and political science, Duke University
Master’s in business administration, University of Chicago

LANTY L. SMITH
Chairman

Lanty L. Smith is chairman of the Board of Directors of Wachovia Corporation. He served as lead independent director of Wachovia Corporation from 2000 until May 2008 when he was named chairman and interim executive officer from June 01, 2008 until July 09, 2008. He is chairman and chief executive officer of Tippet Capital, a merchant banking firm headquartered in Raleigh, N.C. He was formerly a partner with the international law firm of Jones Day and for the past 20 years has been engaged in private equity and venture capital investing.

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