Mr. B

Citi Examines Its Carrots and Sticks

What you miss is that WB would have been in receivership and would not have had the opportunity to take advantage of TARP. It is what WFC and WB management is missing too. WB would have been worth materially less (x - unknown $) without the Citi deal. WFC is essentially stealing this from Citi.



On Oct 05 09:19 AM hunter wrote:

> With either deal Wachovia shareholders are not getting just value
> for what Wachovia is worth. With the rescue package passed and relaxation
> of mark to market accounting rules Wachovia may want to remain independent.
> Wachovia employees should push for them to remain independent. Maybe
> even tkae pay cuts to improve the company.

Breaking News: Wells Fargo Buys Wachovia

This is far from over.

Wachovia would have been in receivership this Monday if Citi and the FDIC did not step in. Wells walked. There would have been no real value today without Citi.

The Citi deal also protects taxpayers by issuing the FDIC $12 billion in preferred stock at 6% and warrants.

Wells will find its credit rating lowered. Wells is exposed to California real estate in a big way, especially with second mortgages. Wachovia doubles down on that bet. What happens if this deal is allowed to stand and then Wells needs to be bailed out at sometime in the future?

If the Wells deal stands, it will have a chlling effect on the ability of the FDIC to arrange other bank deals that help protect depositors and minimize the risk to taxpayers.

This deal should belong to Citi. Even the FDIC thinks so. We will see.

Turnabout: Wells Fargo's Better Deal for Wachovia

This is far from over.

Wachovia would have been in receivership this Monday if Citi and the FDIC did not step in. Wells walked. There would have been no real value today without Citi.

The Citi deal also protects taxpayers by issuing the FDIC $12 billion in preferred stock at 6% and warrants.

Wells will find its credit rating lowered. Wells is exposed to California real estate in a big way, especially with second mortgages. Wachovia doubles down on that bet. What happens if this deal is allowed to stand and then Wells needs to be bailed out at sometime in the future?

If the Wells deal stands, it will have a chlling effect on the ability of the FDIC to arrange other bank deals that help protect depositors and minimize the risk to taxpayers.

This deal should belong to Citi. Even the FDIC thinks so. We will see.

Is Wachovia the Worst Run Bank in America?

The value of this article is not that it was prescient or that the information has not been disemminated before. It is a summary of why WB is in the shape it is in today.

It is also a reminder that the financial hangover that burdens the financial system and the macro-economy is not over.

When in crisis, financial companies shrink to produce cash. There has never been a robust economy in the face of a contraction in credit.

The deleveraging going on in world markets is a vicious cycle. In simple terms, the contraction of contracts forces the sale of assets at discounted prices. Lower priced assets in turn cause a further contraction in credit. Asset prices need to stabilize to stop this cycle or the risk is deflation. Right now people are not placing capital at risk. (Thus no additional investment in Lehman, Wachovia, Wamu and so on.) This is what Bill Gross at PIMCO means by a financial tsunami. Think of the lost decade in Japan.

By the way, I am more with Jimmy Rodgers on the bail out of Fannie and Freddie than I am with Paulson. This is a bail out of the banks and Wall Street and not Main Street. America has courts. The UST should have purchased shares versus placing FNM and FRE into conservatorship.

As an aside, please don't blame the Bush administration for the problem. If you have to blame government, then blame the Clinton administration who said every American should own a home even if they can't afford it and blame Alan Greenspan who kept rates too low for too long. Of course, there are culprits on Wall Street and in hedge funds as well.

And to put it plainly, McCain would be better than Obama in managing the crisis because he has more faith in capitalism and markets than Obama who sees the government as the solution to all problems. The market will solve this problem faster than the government can think much less move.

Fannie and Freddie are the problems they are in part because they are big, dumb GSEs. Fannie was created under FDR.