Wachovia - Retail - Agency, FHA/VA

Update - 2009-04-21: While the merger between Wells Fargo and Wachovia was effectively "completed" as of 2008-12-31, integration of the two is an ongoing process with no as-yet-announced timeframe for implementation. From the "Merger FAQS" page on Wells Fargo's site:

* Starting January 1, 2009 Wachovia Corporation is part of Wells Fargo & Co. Because Wells Fargo Bank, N.A. and Wachovia Bank, N.A. are still separate banks, there are no immediate changes to your accounts at this time. Our goal is to proceed carefully to do what is right for our customers, and it may take several months to begin our integration activities.

* The second important date will be when Wachovia Bank and Wells Fargo Bank combine to become a single bank (known as Integration). In the months ahead, we will decide when Integration activities will occur. You will receive personal communication well in advance with specific information on how it may affect you.

Unfortunately Wells 'customer service' reputation is coming immediately to the teller windows of a Wachovia near you. We know they put 'holds' on funds from Chase bank. When questioned, a Wachovia Bank Manager could only mumble "They are out of state." If you have moved your accounts from Wells Fargo to Wachovia (to get away from Wells), good luck. It's a sad year for Customer Service at Wachovia.

Wachovia's retail mortgage operation appears to still be independent of Wells Fargo's and originating in its own name, as noted on the web site:

"Mortgage loans are originated by Wachovia Mortgage, FSB"

Meanwhile, the long-running forum discussion about Wachovia layoffs on Indeed.com indicates Wells Fargo has been further trimming the ranks of Wachovia employees:

"They have already started with the layoffs. All Wachovia contractors (anyone not a FTE), at least in the mortgage area, have been given end-dates. Some are already gone. Most will be gone by next month. All will be gone by June."

Wells Fargo reported $190 billion in combined mortgage originations in their 2009-04-09 Preliminary Earnings Release for the first quarter of 2009. Wachovia was reported to have contributed 40% of combined revenue. There were combined net charge-offs of $3.3 billion. Final results are due to be reported tomorrow, 2009-04-22.

Update - 2008-10-09: "To the Victor go the spoils." Citi dropped negotiations with Wells Fargo over the purchase of Wachovia today. For Wells (and the Fed) it's a win-win. Reports Bloomberg:

"Wells Fargo gains control of a bank with $448 billion of deposits in 21 states. The agreement values Wachovia at $7 a share and includes the entire company, without any aid from the U.S. government."

Update - 2008-10-06: Just out, Bloomberg reports Citi has filed suit against Wachovia and Wells Fargo, citing both for "bad faith and breach of contract." Earlier in the day, Bloomberg said Wachovia may be split between Citi and Wells Fargo, but noted "Cable network CNBC reported that Citigroup was [now] bidding for all of Wachovia."

CNBC reported 10-05-2008 that the New York Supreme Court granted an injunction in favor of Citi blocking Wells Fargo's bid for Wachovia "until the court rules otherwise." Citing an article in the New York Times, nakedcapitalism stated:

"The litigation could be a blockbuster, pitting some of the nation's largest surviving financial institutions against one another and giving work to the most expensive legal talent money can buy."

Money had been flowing out at the rate of $2 billion per day for the eight days prior to Citi's announcement. From a post on our Discussion Forum:

"Prediction: If a settlement between Citigroup and Wachovia is not quickly reached by close of business on October 6, 2008, in order to avoid any instability in the banking system caused by the litigation battle between Citigroup and Wells Fargo, and the possibility of appeals of emergency trial court rulings, the FDIC will seize Wachovia and hold an auction for the sale of the entirety of Wachovia, thereby eliminating any risk of a New York or Federal court judge enjoining the Wachovia into Wells Fargo merger. Such an FDIC conducted sale would leave only the litigation between Citigroup, Wells Fargo and Wachovia over damages for alleged breaches of contract and tortious interference with contract."

Update - 2008-10-03: Since we added Wachovia to the list, there has been an interesting series of developments. Earlier today, Reuters reported that Wachovia had rejected Citi's offer to purchase the banking assets in favor of a $15 billion stock-only offer for the entire company from Wells Fargo. Citing the "binding" effect of it's "Exclusionary Agreement" with Wachovia, Citi was quick to challenge:

"Citigroup demanded Wells Fargo drop its surprise bid, which comes four days after Wachovia preliminarily agreed to sell its banking assets to Citi for $2.2 billion with partial government guarantees on $312 billion of Wachovia's mortgages.

Citi said Wachovia had signed an agreement to refrain from negotiating with other parties, even if the two parties had not signed a definitive merger agreement."

In an article in Bloomberg, it was noted that Citi "may take legal action to block the deal, and a person with knowledge of the deliberations who also said Citigroup may increase its offer."

Frankly there's nothing happening here that financial penalties won't resolve... needless to say Wachovia disappears regardless.

If the failure of WaMu raised some questions, the "un-failure" of Wachovia just days later begs even more. On Monday, September 29th, the FDIC announced Citi would acquire the banking operations of Wachovia "with assistance," echoing the promise expressed in the WaMu deal that "there is expected to be no cost to the Deposit Insurance Fund."

"Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC."

It's hard to fathom how this "firesale" does not constitute a failure - apparently the absence of any overt action by the Office of the Comptroller of the Currency (OCC) is the qualifier differentiating this Fed-driven transaction (OCC regulates Wachovia, whereas WaMu fell under the oversight of OTS, the Office of Thrift Supervision). Nevertheless, the two deals bear a striking similarity.

The "agreement-in-principle" between Citi and Wachovia carries a price tag of $2.1 billion, with Citi absorbing portfolio losses comparable to the bitter pill Chase swallowed with WaMu. Key factor here is the FDIC will pitch in (but they said no cost?). From Citi's press release:

"Citi will acquire more than $700 billion of assets of Wachovia's banking subsidiaries, and related liabilities. Citi is responsible for the first $30 billion of losses on this portfolio, and expects to record these expected losses under purchase accounting upon closing of the transaction. Citi is also responsible for the next $12 billion in losses up to a maximum of $4 billion per year for the next three years. Citi has also agreed to issue to the FDIC preferred stock and warrants with a combined value of approximately $12 billion. The FDIC has agreed to be responsible for any further losses on this portfolio."

Okay, so Citi takes on $30 and warrants an additional $12 billion, but what about "any further losses?" The deal is expected to be finalized by year's end.

Citi said it would "realize more than $3 billion of annualized expense synergies through the consolidation of overlapping functions." That brings up questions similar to those we raised of Chase/WaMu about the future of mortgage operations for the combined companies.

From a half-page ad in the print version of Monday's Orange County Register, Wachovia states, "...together we have 14,300 ATM's and 5,400 branches nationwide, a quarter of a million employees..." Wachovia accounts for 3,300 of those branches. Citi noted that "31% of Wachovia branches [are] located in existing Citi markets." That makes just over 1,000 Wachovia branches that could potentially be considered overlapping. Citi's press release implies a much lower number, under 300, will actually be closed. "As there is little overlap between the two footprints, Citi expects to close less than 5% of the combined branches."

On an unofficial Wachovia employee discussion forum a post speculated on related job cuts:

"Word is expect Citi to cut at least 10% of employees ... Citi has ~ 300,000 employees + ~100,000 Wachovia ... So mebbe 40K hitting the bricks. Maybe it will come swiftly ... Maybe it will drag out interminably. Whose to say?"

There appears to be a lot of contradictory information here, and absolutely no mention specific to the mortgage operations of either. The only clear thing is Vertice, the wholesale operation subsidiary owned by Wachovia Securities, will not become part of Citi. From Wachovia's press release:

Wachovia Corporation will remain a public company with two main operating subsidiaries: Wachovia Securities, the nation's third largest brokerage firm, and Evergreen Asset Management, a leading provider of asset management services.

In an 8:15 AM (PDT) conference call to Branch Managers, Citi stated that Wachovia will operate as a separate company for at least six months.

We've posted Wachovia Retail as "Ailing" because although they may be originating mortgages on a retail level today, we believe those days are numbered. Previously, we had already imploded their Correspondent and Wholesale lending channels. Help us fill in the blanks, if you can. We'll be updating this listing as additional information becomes available.