Wachovia for Free? Citi Still Paid Too Much

Includes: C, WFC
by: Vernon Hill

Tom Brown argues that Citigroup’s (NYSE:C) Wachovia (NASDAQ:WB) deal is a home run, and that the company is getting Wachovia’s banking business essentially for free.

I don’t buy it. Nothing is cheap enough if the buyer can’t integrate the acquired institution or execute the strategy that led to the deal in the first place. And no company has such a long and unbroken record of destroying value via acquisition as Citigroup does.

From the original Citi-Travelers deal, to Citi’s acquisition of European-American Bank, to its $800 million buyout of Vikram Pandit's hedge fund, Citi’s track record on deals has basically consisted of one fiasco after another. And most of its deals have been a lot less complex than the one Citi proposes to carry out now. For his part, Vik Pandit has never carried out a large-scale integration. (For that matter, he hasn’t even run a large public banking company very long.)

Wachovia, despite the Golden West debacle, had a strong commercial and retail banking model that served millions of customers. Citi has a horrendous retail model, no small-business model, and no middle-market business. And we’re supposed to believe Citi can stitch these two businesses together and make it work?

When Citi bought EAB, it said it loved the retail business and would use EAB’s strong small-business and middle-market base to build a new Citi. Twenty-four months later there was no EAB bank, no staff, and hardly any small-business or middle-market customers.

I don’t see any reason why Citi’s experience with Wachovia won’t be a replay of its experience with EAB.

Sorry Tom, we disagree.

Even getting Wachovia for free, Citi still paid too much.