Saturday, September 27, 2008

Wachovia is Looking for a Suitor

I never thought Wachovia would fail, but they are weak. I always thought that with their brach and retail system that someone would buy them. Personally, I always thought it would be Wells Fargo because this would be their best chance to "jump the Mississippi" into the eastern US.

A couple of things to infer from this:

1.) The bail-out may not be as rich as originally proposed or Wachovia would wait.
2.) Let's see what Citibank and Wells Fargo do. It might give an indication of their health and willingness to expand.
3.) Will the Fed OK the purchase of a major US bank by a foreign bank?


Wachovia Corp has begun early merger talks with several suitors, according to published reports, all of which spurned Washington Mutual Inc prior to that lender's seizure by the U.S. government.

Wachovia, the sixth-largest U.S. bank by assets, began preliminary talks with Citigroup Inc, the New York Times said on Friday, citing people briefed on the matter.

Meanwhile, the Wall Street Journal said Wachovia has entered preliminary merger talks with Citigroup, Banco Santander SA,
and Wells Fargo & Co, citing a person familiar with the situation. Bank executives are expected to be in New York this weekend for talks, it said.

Wachovia spokeswoman Christy Phillips-Brown declined to comment on merger discussions. The other banks either declined to comment or were not immediately available.

The market value of Wachovia was about $21.6 billion as of Friday's market close, Reuters data show. Citigroup's was $109.7 billion, Santander's was $99.8 billion and Wells Fargo's was $123.4 billion, the data show.

Talks would underscore the pressure that Charlotte, North Carolina-based Wachovia, the sixth-largest U.S. bank by assets, has faced from investors, largely because of a $122 billion portfolio of option adjustable-rate mortgages that Chief Executive Robert Steel classifies as "distressed."

The bank suffered a record $9.11 billion loss in the second quarter and some analysts have said it may need more capital after raising $8.05 billion in April.

Wachovia came under further pressure on Friday as investors worried about the fate of a $700 billion government bailout of the financial sector.

JPMorgan Chase & Co's decision to write down $31 billion of loans it took over when it bought much of Washington Mutual Inc banking operations on Thursday for $1.9 billion may foreshadow greater losses at Wachovia, analysts said.

Earlier this month, Wachovia began merger talks with Morgan Stanley following the bankruptcy of Lehman Brothers Holdings Inc
, but people familiar with the matter said earlier this week that those talks had ended.

For Citigroup, combining the two companies would create by far the largest U.S. retail brokerage, with close to 30,000 brokers before attrition. Citigroup would also get the major U.S. retail banking presence it has long lacked, and make it a strong rival to Bank of America, JPMorgan and Wells Fargo.

The bank also raised well over $40 billion of capital in late 2007 and early 2008, leaving Chief Executive Vikram Pandit perhaps better positioned for acquisitions than rivals that failed to raise enough and could not do so now.

Any Wachovia merger talks would come amid uncertainty of the fate of the industry bailout proposed by Treasury Secretary Henry Paulson. The bank would be a prime candidate for help, depending on the types and amounts of securities the government would accept.

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