Wachovia for Free? Citi Still Paid Too Much

Tom Brown argues that Citigroup’s (C) Wachovia (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.

Comments

[venividivici]

Look the fact that poor old Tom Brown shows his sorry backside on this site is indicative of the fact that he has a hide thicker than 20 rhinos. This guy has spent the last year telling the same story ,that financials have bottomed and everyone should get into them NOW! Tom you see is an expert and he really only missed one fact, just about all of the financials are hopelessly insolvent so give him a break. There is a chance, like about a trillion to one, that this time yes, this time, Tom might have got something right. But don't put your house on it.

2008 Oct 02 11:26 AM

[Looking For Leverage]

...and funny how Mr Hill's bio doesn't mention his ignominious departure from Commerce. I will put my money on Citi-Wachovia working...as long as Terri Dial and the Wachovio people do it their way.

2008 Oct 02 11:31 AM

[atavist.avatar]

He who ignores history is destined to repeat it.

2008 Oct 02 11:46 AM

[Ishortyou]

in regards to Wachovia Wachovia got rid off the prior toxic risky wasted bank subsidiaries and kept the good ones. Now it can start from scratch to build a new banking subsidiary with safe practice together with its remaining good outstanding subsidiaries. The current subsidiaries of Wachovia make it look like “Merrill Lynch without the toxic risky waste”, good job from management it separated the good bank from the bad bank overnight, plus its CEO Bob Steel is one of the top rated mutual fund managers. Wachovia will keep the valuable human resources and the talent that have expirience in the banking business saving them for the new banking subsidiary. Buying the municipal bonds or the auction rate securities will give the inflow of cash as long as its hold even to maturity. Some investors are taking money away from Hedge Funds going wild and putting that money into accounts manage by people that know what they are doing, Bob Steel is one of those people that know what they are doing, dont be surprise some of this money will go to Wachovia subsidiaries. Earnings will be adjusted accordingly, like simple arithmetics they will manage its expenses vs its earnings to come ahead in capital and start piling up cash (saving cash a hard job for most of us that live on debt), this new cash will give them the jump start of a new banking subsidiary without even thinking about to sell its remaining subsidiaries.Forgot to mention that Wachovia owns a hudge Insurance subsidiary which is making money and has sound book of business. Lehman debt is bonds most of them senior, as bankrupt as Lehman is those bonds get paid. ARS are Municipal Bonds as bonds they get paid, hold into maturity they get paid in principal, those ARS are cash flow. Preferred dividends will get paid accordingly because the holding company does not own the banking subsidiaries anymore so modification are going to be made. Getting rid off the toxic waste risky bank related subsidiaries is a good strategy and converting the remaining broker one to a new bank subsidiary with clean sheets is a good one too.

2008 Oct 02 12:22 PM

[starpvb]

THE LARGE INSTITUTIONAL INVESTORS OF WACHOVIA INCLUDING DODGE & COX, FIDELITY INVESTMENTS SHOULD CONSIDER CONSULTING WITH MERGERS/ACQUISTION SPECIALISTS TO DETERMINE IF IT IS FEASIBLE TO PUT TOGETHER AN ACQUISITION OF WACHOVIA by WELLS FARGO OR ANOTHER COMPANY IN LIEU OF THE CITIGROUP DEAL IF THEY VOTE NO ON THE CITIGROUP DEAL. OTHER SHAREHOLDERS ARE READY TO VOTE NO, SEE wachoviavoteno.com

2008 Oct 02 12:44 PM

[hunter]

Wachovia is getting a raw deal from everyone involved in this deal from the Govt down. It will never pass shareholder vote. So get ready for a battle Feds and Citi.

2008 Oct 02 12:53 PM

[Ishortyou]

@starpvb well the situation is simple if the 'bail out plan' buys Wachovia bad mortgages at Wachovia's cost price, which I believe is going to be unlikely, and no further wright downs are required, and rating agencies do not downgrade Wachovia's debt, and depositors specially small business payrolls do not run out of the bank to bigger banks like it did in the last few weeks, and the whole economy gets better with few people requiring to take their cash out to cover living expenses then you likely will get a deal.

2008 Oct 02 01:07 PM

[Walked-all-overya!]

We shareholders aren't even getting the courtesy of a nice dinner and a kiss before we get the shaft.

Where is the shareholder suit against the BoD and the Executives? What is the point of SOX if not this very situation?

Here's the thing to understand - Wachoiva Corp isn't getting any Citi stock because Citi isn't buying the whole corp, just the banking ops. Which means that Wach, as a publicly traded corp will still exist...sort of. Considering that I watched the value of my stock erode from $52/share all the way down to, what, $3 or $4, I say let's partner up with a slick little hustler of a lawyer and get these abusers on the hot seat. Let's see Kenny T and his chums repay some of their ill-gotten gains.

This whole scenario is disgusting. The only upside is that I have enough work years left to recover from this fiasco. Where is the AARP in this?

2008 Oct 02 02:33 PM

[mikeg3]

If the Wachovia shareholders turn down the Citi merger, they are left with no Fed guarantees and an unsalable, insolvent bank.

At least the residual Wachovia will be solvent and positioned for success.

2008 Oct 02 02:59 PM

[short gold]

See insider article by Todd C. Nadrich - Leverage

2008 Oct 02 03:27 PM

[ILongyou]

This IShortyou 'investor' seems to be hurting much from the Wachovia stock collapse.... I have seen this exact same post cut-pasted on dozens of websites, forums and discussion boards. Its almost like he trying to spam his way back to profitability :) Its really funny... the desperation and denial that the game is almost over... and its not him that won. Pseudo-psychoanalysis: He probably also finds it VERY difficult to deal with losing in real life... and probably looks for everyone else to blame for his own failure.. hehehe

2008 Oct 02 03:36 PM

[Shafted Wachovian]

Ken Thompson and the sorry Board totally destroyed a fine institution that was in existance for apprx 125 years. For this Thompson gets a $42 million payoff and as an past employee I get nothing. Thompson and the Board should be sued. All this driven by big egos, greed and stupidity.

2008 Oct 02 04:56 PM

[sumosama]

funny...vernon vs. the folks at WFC...

I am going with WFC...they have a much better record.

2008 Oct 03 12:50 PM

[Stone Fox Capital]

Looks like Buffet disagrees.

2008 Oct 03 02:29 PM

[nyka]

Much ado about nothing. Citi stays an orphan, which it probably will remain because of its inherent toxicity.

2008 Oct 03 08:03 PM

[nyka]

To Ishort you...further WRIGHT downs????? Who is WRIGHT? WOW!
Your writing is a reflection of who you are? HELP!

2008 Oct 03 08:07 PM

[Doomsday]

Good call my man Vernon.

WFC looks like they disagree a little bit, if you call 13 billion a little bit.

2008 Oct 03 10:47 PM

[Doomsday]

Vernon is DA MAN!!!

2008 Oct 03 10:48 PM

[bearfund]

I think the author's point wasn't that Wachovia is worth less than nothing but rather that it has no value to Citi specifically. Whether WFC will profit from its offer is a different question altogether.

2008 Oct 03 11:23 PM

[starpvb]

MAJOR SHAREHOLDERS SUPPORT WELLS FARGO BID TO BUY WACHOVIA. GO TO: marketwatch.com
OTHER SHAREHOLDERS SUPPORT WELLS FARGO BID GO TO:
wachoviavoteno.com
CITI SUES TO PUT TAXPAYERS ON THE HOOK FOR UP TO 42BIL IN LOSSES. CITIGROUP IS A PRIME EXAMPLE OF MAIN STREET'S DISDAIN FOR WALL STREET "FAT CATS" WHO CARE ONLY ABOUT THEIR GOLDEN PARACHUTES AND OUTRAGEOUS SALARIES. CITIGROUP SHOULD BACK OFF ON THE LAWSUIT AND MAKE A SUPERIOR OFFER TO THE WELLS FARGO DEAL WITHOUT TAXPAYER ASSISTANCE. IT IS NOT IN THE BEST INTEREST OF THE US ECONOMY FOR THEM TO PURSUE THE LAWSUIT. CITIGROUP IS TAKING REPUTATIONAL RISK AND MIGHT LOSE CUSTOMERS AND DEPOSITS WHILE NOT MINDING THEIR OWN HOUSE.

2008 Oct 05 04:37 PM