Sold: The Rise and Fall of a New South Institution

Less than 5 days ago, I joined millions of Americans watching two combatants in a tilt “Newsweek” referred to as Mr. COOL vs. Mr. HOT; a pairing in which not even first names were necessary. At that moment, I was confident my choice of blog topics for the coming week was preordained. What, with the Vice Presidential Debate scheduled for tomorrow night, Obama-McCain simply had to be “the joint.”

It was quite simple; Senator McCain had suspended (wink-wink) his Campaign activity to return to Washington to save what some detractors derisively termed the Big Bailout Boondoggle, while supporters artfully described it as a Rescue Plan. The Senator from Arizona had deftly maneuvered the script to force Senator Obama’s hand in joining the fun, and surely would persuade his Republican colleagues in the House of Representatives to support the proposal President Bush wanted so badly. Never mind, this was yet another instance of his joining at the hip with a President he declined to even invite to the Republican National Convention, and whom he frequently disavows. How many times did he mention Ronald Reagan during the Debate?

Well, not so fast. A strange thing happened en route to Happily Ever After. The House Republicans voted overwhelmingly, more than 2-1 (133-65) against the measure. The stunning defeat precipitated a 777.68 point drop in the Dow Jones Industrial Average, the largest one-day point drop in the 112 year history of the Index. That the Republican President, and the Republican Presidential Nominee, acting in a manner designed to serve as a Rescue Plan for both their poll numbers could not pull it the Bill’s approval was eye-catching news on its own. The record-breaking Dow dip was obviously a twin headliner.

But the weekend heralded an ominous precursor for Charlotte area residents and their financial interests. Saturday’s edition of the Charlotte Observer announced the likely buyout of the Wachovia Corporation, by either Citigroup (New York), or Wells Fargo (San Francisco). By Monday morning, the decision was in, Sold, to Citigroup.

In a subsequent article yesterday, The Charlotte Observer noted “Charlotte-based Wachovia, an N.C. banking stalwart that survived the Great Depression, 1970s economic woes, and a consolidation wave that stripped many cities of their hometown banks, on Monday succumbed to a ravenous credit crunch that is upending the banking world order.”

True enough, just two weeks earlier, Wachovia’s long-standing neighborhood behemoth competitor, Bank of America, bought National titan Merrill Lynch in a similar fire sale. Just 4 days earlier, The Office of Thrift Supervisors seized Washington Mutual Savings Bank (WaMu), and placed it into receivership of the Federal Deposit Insurance Corporation (FDIC), which in turn sold the banking assets to J.P. Morgan Chase. WaMu retained its debt, and filed for Chapter 11 bankruptcy. In doing so, WaMu, which had been the 6th largest bank in the United States, took on the distinction of becoming the largest bank failure in American financial history.

Wachovia, while also going down in flames, at least technically avoided the designation failed bank. Of course its shareholders might beg to differ. At the zenith of its fiscal solvency, Wachovia shares traded for just south of $60 per share. Monday’s $2.1 billion dollar purchase by Citigroup amounted to roughly $1 per share.

But, while Wachovia will sell its Retail Bank, its Corporate and Investment Bank, and it’s Wealth Management Business to Citigroup, it will retain the name Wachovia, and two business operations, the A.G. Edwards Brokerage, and Evergreen Asset Management, which includes Evergreen mutual funds. While it may seem a small feat, all things considered, Wachovia and Charlotte were spared the indignity of a bankruptcy filing, the Board of Directors survives, and the community’s leadership will at least get to make a pitch to Citigroup encouraging a continued Charlotte presence.

The residual fallout will undoubtedly entail a loss of jobs, perhaps thousands of jobs. Wachovia maintained approximately 20,000 employees in Charlotte, and 122,000 employees total. One local economist estimated that the typical displacement for companies bought out like Wachovia is 20%. That would translate into up to 4,000 jobs loss.

The demise of Wachovia was swift. In another era, one might ask how could this happen? But we are here…and now. In the past 3 weeks, we have seen Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG, and Washington Mutual all go down in various forms of inglorious restructuring, or dissolution. All have fallen prey to the same set of economic forces; an overzealous and under regulated market place. Add Wachovia to the list. Drowning in a sea of toxic debt, Regulators made the final call Sunday evening, and by late Monday morning, news of the sale was filtering its way through the streets of Charlotte.

Wachovia, as we knew it, established in 1879, merged with former competitor, First Union National Bank, in 2001, 47th on the Fortune 500 List in 2007, 4th largest bank holding company in the United States in 2007, and donor of, the maximum allowable, $250,000 to the 2nd Inauguration of George W. Bush in 2005, was no more. Just like that, “Sold: The Rise and Fall of a New South Institution.” I’m done; holla back!

Read my blog anytime by clicking the link: http://thesphinxofcharlotte.blogspot.com. A new post is published each Wednesday.


http://en.wikipedia.org/wiki/Wachovia

http://www.wcnc.com/video/index.html?nvid=287727 (Will bank sale affect city's image?)

http://triad.bizjournals.com/triad/stories/2008/09/29/daily18.html?ana=yfcpc

http://www.charlotteobserver.com/banking/story/222685.html

http://www.charlotteobserver.com/banking/story/222482.html

http://www.charlotteobserver.com/business/story/223360.html

http://www.charlotteobserver.com/banking/story/222346.html

http://www.usnews.com/blogs/new-money/2008/9/29/wachovia-buyout-what-it-means-for-customers-and-investors.html

http://www.cnbc.com/id/26962798/for/cnbc/

http://www.cbsnews.com/stories/2008/09/29/ap/business/main4484853.shtml?source=search_story

http://abcnews.go.com/Business/wireStory?id=5917345

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/29/AR2008092900760.html

http://www.nytimes.com/2008/09/30/business/30bank.html?_r=1&scp=2&sq=wachovia&st=cse&oref=slogin

http://www.fdic.gov/news/news/press/2008/pr08088.html

http://hamptonroads.com/2008/09/qa-what-does-wachovia-buyout-mean-you