N.C.-based Wachovia bought by Wells Fargo

by Rebecca Wetherbee

Oct. 15, 2008

Citigroup Inc. withdrew from negotiations with Wells Fargo & Co. Thursday night over the acquisition of Charlotte-based Wachovia Corp., which has been struggling as a result of the country’s economic crisis.  The New York City-based Citigroup announced its plan to purchase Wachovia on Sept. 29 for $2 billion, or the equivalent of $1 per share.  Citigroup would have absorbed nearly $42 billion in losses as a result of the merger, but the Federal Deposit Insurance Corporation would have been responsible for picking up the slack, absorbing a remaining $270 billion dollars on Citigroup’s behalf.

Within days after Citigroup announced their plan for acquisition, Wells Fargo presented a better deal, offering to buy Wachovia for $15 billion, or $7 per share, leaving no additional costs to the FDIC.  The deal was confirmed Thursday night, though Wachovia’s price tag was lowered to $11.7 billion. 

Representatives for Citigroup say that Wachovia defied an exclusivity agreement with Citigroup by discussing merger possibilities with another bank.  Currently, Citigroup plans to take Wells Fargo/Wachovia to New York Supreme Court and seek $60 billion dollars in damages for Wachovia’s withdrawal from the deal.

This is not the first time the banks have been to court—Citigroup took the banks to New York Supreme Court on Oct. 4 in hopes of stopping further negotiations.  As a result, the Federal Reserve urged the two banks to settle matters privately and barred Wells Fargo and Wachovia from making any decisions until Oct. 6. 

Wells Fargo CEO John Stumpf made a statement late Thursday assuring Wachovia employees that large-scale layoffs are not a part of their acquisition plan.  “We know this has been a time of great uncertainty for Wachovia team members and many of its customers as their company has gone through a very painful and challenging time,” he said.  “We want to assure them we’ll do everything we can to make the integration of our operations as smooth as possible. An important measure of success for this integration will be our ability to retain as many of the talented Wachovia team members as possible.” 

His statement comes as a relief after the past several months when many Wachovia employees were laid-off as a result of Wachovia’s crumbling financial standing.  Analysts believe that Wachovia’s acquisition of Golden West Financial Corp., a California-based franchise that provided adjustable-rate mortgages, played a large part in weakening Wachovia’s mortgage portfolio.  But for employees who have already lost their jobs, Stumpf’s response came too late. 

“My sister lives in Charlotte and she’s having a fit because a lot of her friends have lost their jobs,” said Meredith Larkin, a junior, who proves that North Carolinians are feeling the sting. 

As of yet, it is unclear what other effects may result from the merger, but Wells Fargo is doing its best to keep Wachovia’s infrastructure intact.  Because the two banks are headquartered on opposite coasts, there is little geographic overlap between their branches, meaning that most of the remaining job losses will occur at a corporate level rather than a local one.   

The Wells-Wachovia franchise will become the nation’s third-largest banking firm, rivaling Bank of America and JP Morgan Chase & Co.