Citi takes Wachovia, New York tops Charlotte
Call it the Great Consolidation. Citigroup is taking over Wachovia's banking assets, with some guarantees thrown in by the FDIC should Wachovia's pile of bad mortgages prove to be too costly down the road. Here's Citigroup's explanation of the deal and here's the FDIC version. Don't underestimate the backstopping by the FDIC, which is intended to minimize any damage done from Wachovia's toxic mortgage portfolio -- largely acquired when Wachovia bought California's Golden West Financial (parent of World Savings Bank) for $25-billion at the height of the housing boom. Now Citigroup will pay Wachovia approximately $2.16-billion in stock and assume Wachovia senior and subordinated debt, totaling approximately $53-billion.
So what does it all mean? Humongous banking companies are getting bigger than ever. When Bank of America agreed to buy Merrill Lynch, it created a behemoth. Now comes Citigroup, which with Wachovia's banking assets (it's not buying Wachovia Securities, for example) becomes the leading U.S. retail bank with 9.8 percent U.S. market deposit share (you can't own more than 10 percent of U.S. deposits by law), and total deposits globally of $1.3-trillion.
It also means Citigroup will become the largest banking force in the state of Florida by absorbing Wachovia's extensive branch banking system in the state. Poor Wachovia branch employees were tapping their internal e-mail systems after 9 a.m. this morning, still waiting for an official word to the company's workers even as the Internet and TV news blared reports of the Citigroup takeover.
The biggest shock today will be in Charlotte, N.C., headquarters home to both Bank of America and Wachovia. With Wachovia soon to be back in the hands of a New York City bank, the gnashing of teeth by Charlotte's elite business leaders can be heard all the way to Tampa Bay. Not to excavate the Civil War yet again these days, but Charlotte (especially former Bank of America CEO and Force of Nature Hugh McColl) took great delight when the banking industry's assets concentrated in its town topped that of those Yankees up in New York. No longer.
We'll continue to explore the amazing implications of all these deals throughout this week.
UPDATE**** Here's a link to the Wall Street Journal's "live" blog of Citigroup's conference call this morning with analysts about the Wachovia deal. It's happened so fast that Citigroup can't say for sure yet whether the retail bank will be rebranded as Citigroup or actually keep the Wachovia name!
-- Robert Trigaux, Times Business Columnist