Misery Index

Christina Pretto of Citigroup says the bank will seek the $60 billion in damages it has claimed from the deal gone sour.  That case will proceed, she says, in New York Supreme Court.  She could not say when hearings might be held on Citigroup's claims.

"We did not seek the Wachovia transaction; Wachovia brought it to us," stated Citi CEO Vikram Pandit in a prepared statement,

However, Citigroup has decided not to ask that the Wells Fargo-Wachovia merger be blocked.

Under the Citigroup's agreement with Wachovia, Citigroup would have absorbed up to $42 billion in losses on a $312 billion pool of loans.  The FDIC would have absorbed losses beyond that.

WACHOVIA

The Wells deal was generally preferred by bank employees and in Charlotte.  Wells said it would keep the bank intact.  Because Wells has few operations on the East Coast, there were likely to be minimal job losses below the corporate level.  And a promise to make Charlotte Wells' headquarters for East Coast operations took some of the sting out of the sale of Wachovia, who is Charlotte based.  The price offered by Wells was also seven times what Citigroup had offered.

Analyst Nancy Bush of NAB Research said the decision was a good deal for Charlotte.

"You guys should be breaking out bottles of champagne," Bush said.  Wells Fargo "will be so much more careful of the corporate culture, of Charlotte, of the customers.  They have more retail experience than Citigroup does."

Bush additionally stated that the fact that Citigroup backed down indicated that criticism from customers and shareholders had grown too much.  Of the legal dispute,

"I'm sure (Citi) will ask for a bazillion dollars, and Wells Fargo will give them something."  "There will be some kind of out-of-court settlement."

GIANT WELLS FARGO

Wells Fargo & Co. confirmed the announcement that it and Citigroup have terminated discussions concerning a possible sale of certain banking assets of Wachova Corp. and reaffirmed that it is proceeding with its merger with Wachovia Corp as a whole company transaction wtih all Wachovia's banking and other operations. The BIG news about this deal, is that it requires no financial assistance from the FDIC or any other Fed agency.

Wells Fargo has submitted its application to the Federal Reserve Board seeking expedited approval of the merger and the share exchange agreement previously entered into between Wachovia and Wells Fargo.  That agreement, which was signed and board-approved given to Wachovia last Thursday, proposed that each share of Wachovia common stock will be exchanged for 0.1991 shares of Wells Fargo common stock, representing a value of $7 per share, based on Wells Fargo's closing stock price on Oct. 2, 2008.

Under the same exchange agreement, Wachovia is issuing Wells Fargo preferred stock that votes as a single class with Wachovia's common stock representing 39.9 percent of Wachovia's voting power.  The acquisition of the non-banking related operations of Wachovia and the share exchange agreement have received early termination from the FTC under the Hart-Scott-Rodino Act.

Wells Fargo will acquire all outstanding shares of common stock in Wachovia in a stock-for-stock transaction.  In the transaction, Wells Fargo will acquire all of Wachovia Corporation and all its business and obligations, including its preferred equity and indebtedness, and all its banking deposits.

Wells Fargo Chairman Dick Dovacevich reiterated that the two companies have a firm, binding merger agreement, are confident the merger will be completed, that it will keep Wachovia intact and create significant value for Wachovia and Wells Fargo shareholders.

In addition, Kovacevich said Wells Fargo is pleased that Citigroup announced that it is no longer seeking that the Wells Fargo - Wachovia merger be enjoined. 

"We believe that that is the correct and right decision for our Country and our citizens and the health of our already stressed financial system, as well as our and Wachovia's respective shareholders and stakeholders, " said Kovacevich.

Wachovia Corp President and CEO Robert K. Steel had the following to say on the matter:

"We are delighted to stride ahead with Wells Fargo in creating a coast-to-coast financial institution -- one of the strongest financial firms in the world," said Wachovia Corporation President and CEO Robert K. Steel.

Kovacevich also address, at least indirectly, press reports Thursday indicating that Wells and Citigroup had both found more problems in Wachovia's mortgage portfolio than expected.

"Credit teams at Wells Fargo have had an opportunity to work with their counterparts at Wachovia," Kovacevich said.  "Given our broad-based operating expertise, and specific understanding of these individual businesses we believe we have adequately evaluated the risks inherent in the portfolios as of time of this merger agreement."

The scary part of all of this is that Wells Fargo and Wachovia will have the largest deposit base in the country, creating a coast-to-coast banking franchise for customers.  The combined company will have $1.42 trillion in assets, $787 billion in deposits, 48 million customers, $258 billion assets under management in mutual funds, 10,761 stores, 12,227 ATMs and 280,000 employees.  In addition, Wachovia will combine with the only AAA-rated financial institution in the United States. 

NUMBERS FOR ALL FOR THE DAY

Citigroup (C:  12.93, -1.47, -10.2%)
Wells Fargo (WFC: 27.25, -4.65, -14.6%)
Wachovia (WB:  3.60, -1.46, -28.8%) - But shares have gained 36% in after-hours trading to $4.89 on Thursday night.

SOURCES:

• Charlotte Business Journal
• Charlotte Business Journal
• Charlotte Business Journal
• The News & Observer

The deal expands Citigroup giving it a total of more than 4,300 U.S. branches and $600 billion in deposits and securities in place among the U.S. banking industry's Big Three, along with Bank of America  and JPMorgan Chase & Co.  Citigroup has now reclaimed its title as the biggest U.S. bank by total assets - $2.91 trillion.

But it comes at a cost:  Citigroup Inc. said it will slash its quarterly dividend in half to 16 cents.  It will also dilute existing shareholders by selling $10 billion in common stock to shore up its capital position.

In addition to assuming $53 billion worth of debt, Citigroup will absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio, with the FDIC agreeing to cover any remaining losses.  Citigroup will also issue $12 billion in preferred stock and warrants to the FDIC.

The remainder of Wachovia will include its asset management, retail brokerage and certain select parts of its wealth management business, including the Evergreen and Wachovia Securities franchise.  It will continue to be a public company under the Wachovia name, and will remain the second largest brokerage and intends to operate independently after the Citigroup acquisition. 

Wachovia Securities however, may look for a partner.  Wachovia Securities includes A.G. Edwards, which it purchased for $6.8 billion.  That integration is expected to be completed by the end of the first quarter of 2009.  The brokerage unit manages mroe than $1.1 trillion in assets.  Brokers who recently joined Wachovia from A.G. Edwards are not looking forward to a possible sale. 

Evergreen investments, Wachovia's asset management division, managed about $245 billion for U.S. investors as of June 20, 2008.  However, that division has been hit by the financial crisis.  Since the start of September, investors have yanked about $6.6 billion from the three Evergreen money market funds that Wachovia moved to shore up, cutting their assets by about one fifth, according to AMG Data Services.

Wachovia shares, which had slumped as the global credit crisis intensified in recent months, had not traded by early Monday afternoon, even though electronic premarket trades showed them plunging 91 percent to 94 cents.  Wachovia's stock, which had traded between $7.80 and $52.25 per share over the past year, closed at $10 per share on Friday afternoon, down from Thursday's closing price of $13.70 per share.  It fell more than 90 percent in premarket trading Monday to 94 cents per share.  The New York Stock Exchange didn't open Wachovia's shares for trading Monday until the afternoon and traded at $2, still down 80 percent from Friday's close.  If you owned stock in Wachovia, it's pretty much worthless.  Another slam if anyone invested in Wachovia.  Again, a bank gets bailed out of trouble by another bank, and stockholders and investors are left with major losses, and worthless stock.

But what does this mean to Wachovia customers?  Absolutely nothing.  You can still do all your online and offline banking just like nothing happened.  No temporary held funds, no chained and locked bank doors.  Everything is the same. 

But what doesn't make sense to me is that just a short time ago, Citigroup's investors worried about the possibility of its own collapse given its massive exposure to mortgage-backed securities.  Citigroup has not turned a profit for three straight quarters, and lost a total of $17.4 billion during the period after writing down its assets by about $46 billion.  That's the largest reduction in asset values taken by any U.S. bank in the current credit crisis.  Citigroup said it expects to reduce expenses by more than $3 billion annually as it consolidates certain functions.  So, does Citigroup now have more on it's plate with Wachovia than it can handle? 

....still making that map to the tree where I buried my money in a mayonnaise jar.

VIDEO:  The New Era of Banking Begins via CNN

Image Source:  The Consumerist

Of Wachovia's $122 billion in Pick-A-Pays, 5.78% are considered "nonperforming," or more than 90 days past due, as of this year's second quarter.   Another 5.2% of the portfolio is delinquent by less than 90 days.  As of last year's second quarter, only 1.03% of the Pick-A-Pay portfolio was classified as nonperforming.

Wachovia's $44 billion in traditional mortgages, by contrast, show a nonperforming rate of 0.98%, up from 0.35% in last year's second quarter.

Of the entire Pick-A-Pay portfolio, 58% of the outstanding balances are tied to properties in California, and another 10% are tied to homes in Florida - two states hardest hit by declines in home values.  In comparison, of WaMu's ARMs 62% were also in California and Florida.

"Wachovia has a real problem," said Len Blum of the investment bank Westwood Capital.  "Option ARMs are probably the worst mortgage products out there and Wachovia has a lot more of them than it has in tangible equity."

The bank's shares, which are down nearly 80 percent in the last year, plunged 27 percent Friday, to $10, as investors wondered about its health after the government's seizure of WaMu on Thursday.

In after-hours trading, Wachovia dropped another 15 percent, to $8.50, after The New York Times reported that New York-based Citigroup Inc. was in early talks to buy the bank.  The Wall Street Journal said bids may come from San Francisco-based Wells Fargo & Co. and Spain's Banco Santander SA.

DID YA KNOW?

Did you know that Wachovia will pay tens of millions of dollars for having "engaged in unsafe or unsound practices" in connection with telemarketing fraudsters, the U.S. Treasury announced back in April, 2008?  Without admitting or denying wrongdoing, the bank agreed to pay as much as $125 million in restitution to consumers who were harmed by scams perpetrated by five firms?  Wachovia would also pay nearly $9 million for consumer education programs and a $10 million civil penalty to the Treasury Department.

The Treasury Department said it believed thousands of consumers, many of whom were elderly, were harmed by teh millions of dollars in fraudulent transactions telemarketing scammers process through Wachovia.  The bank was not directly involved in the scams but made millions in processing fees with the transactions.