Wells-Wachovia: That's $270 billion less we're on the hook for
In a fascinating turn of events that we'll surely all learn more about over the course of the next few days, Wells Fargo--which had been about to buy Wachovia a week ago and then backed down, forcing the FDIC to bankroll a shotgun acquisition by Citigroup--changed its mind and agreed to pay $15 billion for the giant bank.
This time the FDIC isn't part of the deal. So that $312 billion Wachovia loan portfolio that the FDIC agreed to share losses on with Citi (Citi agreed to take the first $42 billion) is now completely Wells Fargo's responsibility. Although of course we taxpayers are all on the hook for Wells Fargo's losses in the same way we're on the hook for any bank's.
The encouraging part here is that instead of a combination of two ailing banks engineered by a government agency we get an outright takeover by one of the healthiest big banks in the country. A big bank whose biggest shareholder is Warren Buffett (who bought in during the country's last banking crisis, in 1990). And a bank whose chairman, Dick Kovacevich, is widely thought of as the smartest guy in the banking business.
The deal would leave a competitive landscape with three giant national retail banks--JP Morgan Chase, Bank of America, and Wells Fargo--leaving Citigroup as a sort of odd man out, with big global and investment operations but not nearly the domestic branch network of the Big Three. Oh, and it leaves Kovacevich, who left Citi in 1985 after losing out on a promotion, thoroughly vindicated.
For now at least. The one thing about the Wells-Wachovia deal that worries me is that it creates an entity awfully exposed to California real estate (it was Wachovia's acquisition of California thrift Golden West--a.k.a. World Savings--that got it into trouble in the first place).
Oh, and one thing about the new Big Three that I find interesting: Their names are all brands they picked up along the way from banks they acquired. If I've got it right, they're really Chemical, Nationsbank and Norwest.
Update: Charlie Gasparino is reporting on CNBC that Citi is very ticked about this. Will it try to block the deal? We'll see.
Update 2: The WSJ reports that Citi may sue, or may make a new bid. A bidding war! In the middle of a financial meltdown! That's pretty cool.
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1
Justin,
I find it funny that when Citi was buying Wachovia, everyone was pointing out how banking operations would be controlled by 3 banks (JPMorganChase, BoA and Citi/Wachovia).
Now it's JPMorganChase, BoA and Wells Fargo/Wachovia.
In fact, I'd be happy that this is how things shook up, because this means that Citibank is in position to swoop in and gobble up any other distressed bank which needs saving - at which time we'll all be able to refer to banking operations in the U.S. being controlled by 4 banks.....
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Thats ok because we need the money to increase AIG's credit line.
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3
Goes to show you what happens when you're on a redeye from the Left Coast . . . the finance guys do something incomprehensible again.
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4
I was at lunch the other day when the House didn't pass the bill the first time around. I guess I didn't want it enough. Not that, as a member of the media, I'm allowed to want it.
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5
Has anyone noticed that, with these bargain basement acquisitions, we're going the wrong way in terms of overall risk? We put federal resources for Fannie Mae, Freddie Mac, and AIG because they were "too big to fail." Have the new big three of Chase, Wells, and BoA simply created just three more "too big to fail" financial institutions? Couldn't we argue convincingly that the growth of creative and complex financial instruments directly correlates with the centralization of the financial system and the creation of mega-institutions with massive amounts of capital? That the sheer size of these institutions also allows them to more indomitably push back against the regulations and controls that are, well, in everybody's best interest? Sure, these mega-mergers are getting taxpayers off the hook for now, but aren't we reproducing the problem in order to solve the problem?
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6
Chemical? I thought JPMC was really Bank One; at least that's where Jamie Dimon came in. So shouldn't it be Bank One, NationsBank (or NCNB if you go a little further back), and Norwest?
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7
I have been banking with Wachovia, since it was South Trust. If Citi gets Wachovia, I will close out my account. I hope Well Fargo gets it.
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8
Actually, if you're tracing in reality, Chemical was acquired (viewing management of the new firm) by Manny Hanny.
So realistically it's MannyHanny, an admitted antitrust violator (NationsBank), and the acquirer of another antitrust violator (whoever ends up with Wachovia).
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9
@RBBrittain & Ken Houghton: Bank One was definitely acquired by JPMC, although the acquisition was in part an extremely expensive way to hire Jamie Dimon. But that may be true about Manny Hanny acquiring Chemical and not vice versa. I wasn't paying any attention to banks yet then (in 1991).
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[...] nobodies, so it means nothing), but way, way back in October, I posted a rapidly-obscure comment to one of Justin Fox’s posts on the Wachovia-Wells Fargo merger. Here’s the text of my comment from October 3: Has anyone noticed that, with these bargain [...]
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