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Citigroup takes over Wachovia, becomes Florida's top bank

By Asjylyn Loder, Times Staff Writer
In print: Tuesday, September 30, 2008

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ADVERTISEMENT Related Links Venture blog: Fighting growing public economic fears FDIC press release: Citigroup Inc. to Acquire Banking Operations of Wachovia Stock ticker: Wachovia Corp.

TAMPA — For a buck a share, Florida got a new No. 1 banker.

Wachovia Corp. toppled from its spot as the state's largest bank Monday, the latest casualty of the global financial crisis as it agreed to be sold to Citigroup Inc. in a fire sale arranged by federal regulators.

The ownership upheaval is one of several recent quakes that alter the landscape of retail banking nationwide and in Florida in particular. The two banks expect to complete the sale by the end of the year. The deal will make Citigroup one of the nation's three largest banks along with Bank of America Corp. and JPMorgan Chase & Co. and will make Citigroup's retail banking operation the largest in Florida.

Wachovia told its employees to conduct business as usual, but TJ Jamil said that was proving hard for his regulars at the Little Store at Wachovia Center in downtown Tampa on Monday. Jamil's customers worried aloud about their jobs as they lined up for coffee and pastries.

"I'm worried about what will happen," Jamil said. "Most of my customers are Wachovia employees."

Wachovia had been reeling from mounting losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp. The roughly $25-billion purchase propelled Wachovia past Bank of America to the top slot as Florida's biggest bank, but also burdened it with toxic mortgage debt.

Facing collapse, Wachovia agreed to sell its banking operations to Citigroup at the bargain-basement price of $2.2-billion, or $1 a share. Citigroup will shoulder Wachovia's debt.

FDIC brokered sale

The bargain isn't all good news for Citigroup. It will take a loss of up to $42-billion to write down Wachovia's $312-billion loan portfolio. Citi slashed its dividend and said it will seek to raise $10-billion in equity to offset the loss.

The Federal Deposit Insurance Corp. brokered the sale and received $12-billion of warrants in Citi in exchange for insuring that the bank's losses won't exceed $42-billion.

Wachovia shares closed at $1.84, a drop of $8.16. They had traded as high as $52.25 over the past year.

Citigroup shares fell $2.40 to $17.75. Shares have traded between $12.85 and $48.95 in the past 12 months.

It's too early to tell how the buyout will affect employees of the two banks, said Citi spokeswoman Janis Tarter. Since the banks have little overlap, Citi expects to close less than 5 percent of its combined branches nationwide, she said.

Employees in Florida

Citi has about 3,200 employees at its Citi Center site in Tampa, of about 12,000 employees in Florida. The bank has about $8-billion in deposits in the state, 49 Citibank Financial Centers and 106 CitiFinancial offices, including 20 in Hillsborough and Pinellas counties. Citi also has an office in downtown Tampa devoted to municipal and public finance, Tarter said.

Wachovia holds more than 20 percent of the state's deposits, valued at more than $71.3-billion, and has 720 offices and 15,000 employees around the state, said bank spokeswoman Kathy Harrison. In the Tampa Bay area, Wachovia has 86 financial centers, 1,500 employees and deposits of $7.7-billion.

Wachovia Securities is not part of the sale. The securities division employs 29,680 nationwide, said spokeswoman Mary Eshet. It's unclear how many work in Florida.

The Wachovia Foundation, the bank's charitable arm, supports area charities such as the United Way, Metropolitan Ministries, the American Cancer Society, All Children's Hospital and Florida Blood Services. The foundation will honor its commitments to those organizations, Harrison said.

First Union Corp., which later bought Wachovia, muscled in on the Florida market in 1991, after federal regulators seized Miami's Southeast Banking Corp. The purchase made First Union one of the state's largest banks.

"That's what put First Union on the map and made it a big player," said Ken Thomas, an independent bank consultant and economist based in Miami.

In 2001, First Union bought Wachovia and assumed the Wachovia name. The purchase made it the largest bank in most of the Southeast, and the second largest in Florida behind its longtime rival Bank of America.

Unknown in West

Despite its success in the Southeast, Wachovia remained a relatively unknown bank in the West until its $25-billion purchase in late 2006 of Golden West, known in Florida as World Savings Bank, Thomas said.

The sale pushed Wachovia past Bank of America as Florida's largest bank, but also tied Wachovia to $122-billion worth of Golden West's signature "Pick-A-Payment" loans, which let borrowers decide how much to pay each month. Wachovia's foray into adjustable-rate mortgages poisoned the bank's balance sheet as delinquencies and defaults skyrocketed, Thomas said.

"One acquisition in South Florida made that bank, and one acquisition out West killed that bank," he said. "That's what they're going to put on the tombstone of Wachovia."

Information from the Associated Press was used in this report. Asjylyn Loder can be reached at aloder@sptimes.com or (813) 225-3117.