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EDITORIAL: Sad day for Wachovia
(Independent Tribune Via Acquire Media NewsEdge) Sep. 30--We never thought it would come to this, despite the dire predictions and gloomy forecasts.
Wachovia Corp., the region's second-largest bank behind Bank of America and once a pillar of financial strength in the Southeast, agreed to sell its retail and commercial operations to Citigroup Inc.
The transaction was facilitated by the Federal Deposit Insurance Corp., which felt compelled to broker a deal to restore confidence.
Wachovia, which will remain a public company with two main subsidaries (Wachovia Securities and Evergreen Asset Management), saw its stock plunge from a high point of $59.85 a share in April 2006 to less than $1 a share at one point Monday as investors cut their losses.
How the mighty have fallen, and it's heartbreaking for anyone who took pride in having Wachovia and Bank of America's world headquarters in our backyard.
Wachovia fell victim to its ill-timed acquisition of Golden West Financial Corp. in 2006 and the inability of customers to handle adjustable-rate mortgages.
Wachovia's vulnerability in the end was stunning. Citigroup was forced to absorb $42 billion in losses. The FDIC, acting on behalf of depositors and funded by taxpayers, was forced to back any other losses from Wachovia's $312 billion loan portfolio.
Fortunately, the FDIC negotiated $12 billion in preferred Citigroup stock and warrants as part of the deal.
The FDIC said Wachovia was not on the verge of collapse and indicated no money from the insurance reserve was used to close the transition.
"On the whole, the commercial banking system in the United States remains well capitalized. This morning's decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury," FDIC Chairman Shelia C. Bair said Monday. "This action was necessary to maintain confidence in the banking industry given current financial market conditions."
Nevertheless, taxpayers are exhausted. The feds were forced to seize Washington Mutual last week. A bailout plan for Washington to clear Wall Street of toxic mortgage loans was derailed in Congress after a public revolt.
Treasury Secretary Henry Paulson hinted dire consequences were ahead for Wachovia without a merger or takeover, saying "failure of Wachovia would have posed a systemic risk" to the nation's financial system.
"As I have said before, in this period of market stress, we are committed to taking all actions necessary to protect our financial system and our economy," Paulson said.
Citigroup's acquisition is not good news for 20,000 Wachovia employees in the region. Citigroup said in a statement it will save "more than $3 billion of annualized expense synergies through the consolidation of overlapping functions."
Translation: Layoffs likely will be imminent after the sale closes by year's end. Early projections suggest up to 5,000 employees in the region could lose their jobs in the acquisition.
Just last summer, Wachovia cut 11,350 jobs from its nationwide work force of 120,000. The bank acted after posting a $9 billion loss, mostly from bad loans.
The Wachovia deal and Washington Mutual failure were on Congress' mind as it considered a bailout of Wall Street on Monday.
The U.S. House of Representatives voted down a proposal Monday that would have included financial relief for foreign banks and holding companies. U.S. Rep. Robin Hayes, R-N.C., joined the resistance.
"I truly believe we have a credit crisis that is negatively impacting our economy," Hayes said. "But one of the questions of concern I raised last week was eligibility, and this bill expands eligibility beyond where I think it should be.
"The initial draft of the proposal that came from the Treasury was fundamentally limited to U.S. financial institutions. However, during the course of negotiations, this changed, and now foreign banks and financial companies are just as eligible to receive U.S. taxpayer dollars as an American company."
The instability continues to create concern. Congress must find a way to relieve credit markets and stabilize the banking system.
Your ability to borrow is at stake. The worth of your 401(k), if it's tied to the stock market, is at risk.
It's hard to believe, but we're living in the most trying financial times in more than 70 years.
The region will not be the same without the Wachovia name. The thought is painful, as is the entire process to correct the mortgage crisis.
Unsigned editorials represent the views of this newspaper. Respond with a Letter to the Editor by e-mailing letters@independenttribune.com. Comment online at www.independenttribune.com.
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Copyright (c) 2008, Independent Tribune, Concord, N.C.
Distributed by McClatchy-Tribune Information Services.
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