Robbing Peter to Pay Paul: More on Wachovia / Citi 63 comments
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Continuing my previous post on the Citi (C) / Wachovia (WB) deal, and some comments from myself and others on that post , here is what is known so far.
At the end of the year, we will get proxy statements and will be able to vote on the deal. I sure as hell am not voting for it unless something significant changes about the deal. As it stands, Citi paid just over $14 billion for Wachovia’s assets that it plans to take over - $12B to the Feds and the rest to Wachovia, and the Feds brokered this deal. Citi also agreed to cover up to $42 billion in losses on Wachovia’s mortgage portfolio. Anything above that the Feds will cover. But Citi's CEO also stated that the losses will not go beyond $42 billion. What the hell is the Feds being paid $12 billion for then? Why is that not being paid to Wachovia? This is like robbing us Wachovia shareholders and paying the Feds for absolutely no plausible reason.
Another reason why this is seriously robbing us blind is that the deal was done with Citibank, which has not reported profits for a long time. It has problems of its own. Wachovia is a great bank with stellar customer service and I’m afraid that Citibank will ruin all that. The Golden West portfolio is the problem with Wachovia, and if the Feds really want to solve this problem and take $12 billion in return, I would rather have Wachovia pay them $12 billion to take over the entire Golden West portfolio than this strange deal. Also, that monstrosity called Citibank will just become a bigger one. If you would have asked anyone before this deal which bank they think is in bigger danger of collapsing, Citibank or Wachovia, I think that most people would have answered Citibank.
In fact, a lot of people were betting on Wachovia surviving, one prime example being Fidelity, who bought 70 million shares of Wachovia. Wachovia insiders have continuously bought stock, so even they didn’t expect this to happen.
Disclosure: Author owns shares of WB
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This article has 63 comments:
Citi takingover Wachovia looks crazy. I hope the key shareholders stop the takeover.
As far as the comment above, that this is a done deal, it certainly is not. Stupidity could still reign. Citi bonds are still trading normally and have not been discounted. Wachovia's debt though is trading in tthe 50s and 60s. If this was a done deal it would be in the high 90s like Citi's. The bond traders are obviously worried that stupidity might win out.
Angry shareholder
I got shafted out of nearly my entire investment by the "Mark to Market" rules. Wachovia could certainly have made it alone if the Feds had offered them the Citi deal terms.
Shame on me for not believing that the sky was falling.
Hopefully other large shareholders oppose the deal. So far the market is assuming that it is a done deal.
I don't know about WM, but Wachovias toxic debt was about 1/3rd of it's loan portfolio about 110 billion of which they expected losses on 14% of those loans = ~15 billion. I'm not sure what is meant by they expected losses - how much to the dollar are these worth now? 0, 10c, 50c, 75c? Who knows? Could Wachovia have sold those 15 billion worth of loans at 5 billion? 1 billion? Anything is better than what heppened.
@tom, i think Wachovia could have made it alone too if offered the same deal by the Feds that they offered citi.
Unless there sre some major changes in further compensating Wachovia shareholders I plan to vote against the acquisition agreement. I am also a Citigroup shareholder so I will vote against the proposals on both proxies. As a retired National Bank Examiner I'll use their description of resolving problem bank issues by consolidating 2 problem banks and create one larger problem bank. In this case, creating the largest problem bank in the country.
Less than a week before WB's takeunder, the WSJ reported that the FDIC insurance fund was inadequate to handle the pending bank failures and the FDIC posted a highly defensive response.
The FDIC structured the takeover so that it would generate a profit for them by screwing the WB shareholders out of $7 that Citi would otherwise have paid the WB shareholders. In effect, the FDIC was giving the WSJ the finger and telling all the surviving banks - Do what we tell you or else.
WB would probably have become insolvent by December (although the bailout might have saved them), but the FDIC jumped the gun to make point and a profit,
I've seen that valuation elsewhere, especially when the insurance end of Wachovia is figured in. I don't think previous assessments included that.
Anyway, Citicorp put a floor of $1 per share under the stock. I sure wouldn't sell now for just $2 or $3. Could go to $10 very soon. (Hell, anyone buying on Monday has tripled their investment already. ;-)
World Series win. Attendance will stay the same, tv netoworking revenues continued to fly in, but the Yankees still haven't won one since.
@ishortyou - I see you commenting everywhere about the great assets left behind but you forget Wachovia is a great bank (not counting the mortgage). Everybody knows Citi got a spectacular deal because of that.
Steel said that "Wachovia has a great future as an independent company", not Cramer.
You say of executives: Those are usually people who have worked for 20 years or so and are supposed to monitor and make adjustments.
In reality those were the people who moved in the upper echelons of a powerful industry, lead by a man who was one of Bush's rangers. But the right checks and balances were not in place - on the board or in executive management - to counter his hubris (sound familiar?) and as a result he made the acquisition that may have eventually sunk a great bank. May have - now that it's been hijacked, we'll never know if they would have made it or not.
I'm voting my shares down. Won't make a difference, but I'll feel a little better.
I think we just need more information to determine what to do, I am inclined to vote NO and to also encourage all to vote the same way. I am also inclined to look at the Class Action Suit that is being discussed in Coral Gables Florida before I make my decision.
I think the Feds stepped in too soon and forced this deal and that Wachovia can and will survive and that Citi was not the right suitor.
Shame on Buffet for discourging Wells from doing the deal.
When will this transaction be consummated?
We expect this transaction to close before year-end, subject to approval from Wachovia shareholders and the appropriate regulatory agencies. It has been approved by directors of both companies.
Of course, WB's institutional shareholders will approve the deal - It's unlikely that Citi would have agreed to it unless they had assurance that WB's institutional shareholders were on board.
However, I don't think the Wachovia leftovers will remain independent. Steele will probably sell them to Morgan Stanley so that he can become the next CEO of MS. The common stockholders will probably get one share of MS for 10 shares of WB. This would dilute MS' common stock float by 20%, but the dilution can be handled by reducing the dividend. The only obstacle to this merger would the huge amount of outstanding WB preferred stock.
The current shareholders are basically screwed - the only recourse is a class action lawsuit. Which I would gladly join - except I sold the last of my shares when the board fired Thompson without naming a replacement.
Well. The joke is on all of us. I knew WB management was up to something because of the way investor relations was stonewalling about the Citi deal.
The Wells Fargo deal is much better for WB shareholders and you should take it. The fair value of WB is probably $9 and you'll be getting $7. The main difference is that WB shareholders will get paid rather than FDIC.
Saint Warren must have gotten a guarantee from Congress that the bailout bill will pass. WFC can sell Wachovia's toxic crap to the taxpayers and WFC (and Warren) get. an instant profit of $4 Billion.
And Warren probably gets more face time on CNBC with Becky Quick. PS Do you guys think he's nailing her?
www.parchayi.com/2008/.../
and it will hopefully soon be up on seekingalpha too
Know your audience. The folks who don't know these basic concepts aren't generally posting on a specialized blog - you can see from the level of discourse that you're dealing with an informed audience.
And you're incorrect that each individual person had a say so in this situation. The acquisition was a management decision. When those loans started going bad and tanking he value of the CMOs, the employees did their best to cover mounting losses, but ultimately couldn't do enough to keep up with internal losses and unprecedented external influences. The real world does not work like academic theory - would that it were that simple.
"That deal is done for if you pull up the actual transcripts. Or else they wouldn't have made it public, including hte citigroup acquisition transcripts". Clearly the deal was far from done, it didn't even have legal documentation behind it yet.
I don't want to inflame, so I'll go elsewhere. Enjoy.
this 700B baillout and this C/WB deal is all about pmaking foreign investors whole after Wall St sold them all this garbage SIV's
we are being soldout by our govt so that the USA continues to get the 2b/day that we need to fund our deficits
it is econmic extortion being laid on the American taxpayer
triad.bizjournals.com/...