Local effect small in Wachovia sale
After the sale, Wachovia will remain a public company with two main operating subsidiaries: Wachovia Securities, the nation's third largest brokerage firm, and Evergreen Asset Management.
"We're still very much here," said Mike Nimmo, senior vice president of Wachovia Securities in Janesville.
The $2.1 billion sale of Wachovia's retail, corporate and investment banking operation greatly expands Citigroup's retail franchise, giving it a total of more than 4,300 U.S. branches and $600 billion in deposits. It also secures Citigroup's place among the U.S. banking industry's Big Three, along with Bank of America Corp. and JPMorgan Chase & Co.
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 Federal Deposit Insurance Corp. agreeing to cover remaining losses, if any. Citigroup also will 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 businesses, including the Evergreen and Wachovia Securities franchises.
"What it really means for us is that the banking side of Wachovia goes away," Nimmo said. "And along with it goes the cloud of bad mortgages."
The agreement comes after a fevered weekend courtship in which Citigroup and Wells Fargo & Co. both reportedly were studying the books of Wachovia Corp., which was weighed down by losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.
Wachovia, like Washington Mutual Inc., which was seized by the federal government last week, was a big originator of option adjustable-rate mortgages, which offered very low introductory payments and let borrowers defer some interest payments until later years. Delinquencies and defaults on those types of mortgages have skyrocketed in recent months, causing big losses for the banks.