What Will Remain in Wachovia When Citi Is Through?

We now have a clearer idea of what will remain in Wachovia Corp (WB) after the transfer of the banking assets and corporate debt to Citigroup (C). I spent all day reading Wachovia Corp. prospectuses hoping that the common and preferreds would get hit when they opened. It seems that others were reading them too.

The WB common closed in the after market today around $2. That is after being halted in the pre-market at $.90/share.

There are several different preferreds issued by Wachovia and they have unique features. Some are actually backed by debt. (WBprB, WBprC, WBprD). Dividends can be skipped for 10 years without triggering a default. I assume (a dangerous word) that these will become debt of Citigroup. That is not 100% clear. All three are $25 par and trading between 9 and 11.

Then, there is WBprS (called preferred J) which is a 1/40 share of an actual preferred with an 8% dividend. It was sold in Dec. 2007. The dividend is not cumulative and this preferred is equity. It will continue to be a security of Wachovia Corp. It closed around $7.

The WBprT was issued at $1000/share in April 2008. It has a lot of moving parts. It closed at $320 and traded actively in the after market session. I suggest that you read the prospectus.

Dividends on this preferred are 7.5% and not cumulative. It will continue to be a security of WB.

Then you have to figure out what the remaining Wachovia will be worth. It will consist of Wachovia Securities (including AG Edwards), Evergreen funds, an insurance subsidiary, and the $2.1 billion of Citigroup shares it will receive when the bank transaction is completed.

The common shareholders have to approve this.

There will possibly be a very large tax loss carry forward and this may be of value to a merger partner.

Prudential (PRU) will continue to own a minority interest in Wachovia Securities.

I don't know what all this will turn out to be worth, but I think all these preferred securities will be worth more than today's closing prices in 6 months. The preferred securities that remain with Wachovia will all rank ahead of the WB common stock.

Disclosure: Author owns or manages 8 accounts with Wachovia Securities (the firm) but has no position in WB or any of the preferred securities. He also has 6 accounts at Citigroup but owns no shares.