Rescue at Hand for Wachovia

Yet another bank has found itself in trouble but luckily for Wachovia and it's customers a rescue bid/buyout is on the cards.

With Bradford & Bingly being rescued in the UK it must bring into question just how many banks can survive and how can or should we afford these rescue packages!

Portland Business journal have provided an in depth report;

Citigroup has agreed to buy Wachovia’s banking operations.

New York-based Citigroup will pay $2.1 billion to Wachovia for its retail bank, corporate and investment bank and wealth-management business. Citigropu will base the retail bank in Charlotte and the investment bank in New York.

Citigroup will pay about $1 a share for Wachovia, according to The New York Times.
The sale does not include Wachovia Securities, which has nine offices in Portland and 16 others across Oregon.

Under the agreement, Citigroup (NYSE: C) will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that.

Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.

“This morning’s decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury,” FDIC Chairwoman Sheila Bair said. “This action was necessary to maintain confidence in the banking industry given current financial market conditions.”

Wachovia’s stock (NYSE: WB), which has traded between $7.80 and $52.25 a share over the last year, closed Friday at $10, down from Thursday’s closing price of $13.70. Wachovia's stock was trading at 94 cents per share Monday morning.

According to the FDIC, Citigroup will acquire the bulk of Wachovia's assets and liabilities, including five depository institutions, and assume Wachovia's senior and subordinated debt. Wachovia (NYSE: WB) will continue to own Wachovia Securities and Evergreen Investments.
The transaction is expected to close before year-end. It has been approved by the directors of both companies and is subject to Wachovia shareholder and regulatory approval.
At this time, there have been no changes to Wachovia’s board. Two Wachovia directors will join Citigroup’s board.

According to The Wall Street Journal, Wachovia held advanced merger discussions with both Citigroup and California-based Wells Fargo & Co. (NYSE: WFC) late Sunday. The newspaper cited individuals familiar with the discussions.

It was only last fall that Citigroup was seeking to raise billions to offset its substantial losses amid the credit crisis.

Spain’s Banco Santander SA also was said to be interested in Wachovia, but longtime industry observers were dubious that the U.S. government would want to work with a foreign bank to rescue Wachovia.

Late Friday, a Wachovia spokeswoman declined to comment, saying the bank doesn’t discuss merger speculation.

Reports late last week indicated that struggling Wachovia was seeking a suitor. The Charlotte-based bank fumbled badly on its ill-timed purchase of Oakland, Calif.-based Golden West Financial Corp. Much of the bank’s mortgage woes stem from that $25 billion deal completed in 2006. Many analysts said that deal was a huge mistake even before it closed.
“During recent weeks, the financial landscape has changed significantly and presented us with unprecedented challenges,” says Wachovia Chief Executive Robert Steel. “Today’s announcement is the best alternative for the company, enabling a resolution on the Golden West portfolio.”

http://www.bizjournals.com/portland/stories/2008/09/29/daily1.html