Wachovia Uses Fed Lifeline & Shotgun Marraige To Find Better Offer

Wachovia, One of if not Georgia’s largest banks, agreed today to be taken over by Wells Fargo.  Funny thing is, Wachovia agreed earlier this week to sell its banking operations to Citigroup, with the FDIC agreeing to shield Citigroup from certain losses.

Wachovia was experiencing what was called a “silent run” on the bank, where large corporate customers were withdrawing non-FDIC insured funds at alarming rates.  The FDIC assisted in the sale to avoid having to take over Wachovia.  That calmed the run, and Wachovia found a better offer.

Citigroup, however, is calling BS:

The Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp., but the Wells deal would be done without it. The head of the FDIC said the agency is standing behind the agreement it made with Citigroup.

Citigroup says its agreement with Wachovia provides that Wachovia will not enter into any transaction with any party other than Citi or negotiate with anyone else.

So, Peach Punditers, how do you like the first evidence that the Bailout and Fed actions are allowing banks to reneg on deals when better offers show up?  Or is this just evidence that the markets need to be calmed so that better transactions can take precedent over panic transactions?

UPDATE:  NEW YORK JUDGE INTERVENES ON BEHALF OF CITIGROUP

I’m beginning to believe that the FDIC is willing to sacrifice Wachovia shareholders in order to save Citigroup, and thus, their shareholders.

ANOTHER UPDATE:  NY APPEALS COURT OVERRULES LOWER JUDGE

18 comments

  1. Chris says:

    Has taxpayer funds been put into Wachovia by the FDIC?

    If not that the FDIC has no f–ing business standing between the shareholders of Wachovia and the shareholders of Wells Fargo trying to make a deal that is most advantageous to both parties.

    AIG shareholders got ass-raped by the Fed swooping in with “We’re from the government and we’re here to help, give us 80% equity”. I don’t blame Wachovia for telling the Feds to go pound sand.

  2. Let’s bailout Rhine, Georgia. We need city sewage. We promise not to reneg on contracts.

    I have a feeling this is all this “rescue plan” is going to produce, trouble.

  3. Game Fan says:

    Some people didn’t buy into the bubble and some aren’t buying the total “burst” either. Kofi Anon ain’t gettin’ my home for pennies on the dollar! But he could always stop by if he brings beer. And no I don’t really think these politicians know what’s going on either.

  4. Icarus says:

    “I have a feeling this is all this “rescue plan” is going to produce, trouble.”

    I look at Katrina relief as the model. Westmoreland got pounded on by both parties for voting against it. He was one of 8 in the entire house, if I remember correctly. His reason was that the largest line item was “other”, and there was no clear plan on what to do, just a rush to “do something”.

    The same folks that attacked him for voting no had no problems grandstanding later when the fraud, waste, and abuse of those funds were uncovered.

    Same problem, more zeros.

  5. I think looking at Katrina as a model is just picking a bad example Icarus.

    For example let’s look at… wait. When was the last time government got something right?

  6. Vic says:

    Chris,

    1) Ousted AIG Chairman & CEO Hank (Maurice R Greenberg) begged the Fed for the bailout. Looks like he and family got away with something close to murder. You gotta keep your eyes on those Desperate Wall Street Housewives:

    2) “Ex-AIG CEO gives $2.2B in stock to wife
    Gift of 41.4 million shares given three days before Greenberg forced from post
    April 13, 2005: 4:08 PM EDT -CNN”

    3) FAST FORWARD TO 10/1/08
    Former CEO Maurice Greenberg Eager to Bid on AIG’s Assets
    10/1/2008 11:12 AM

    “American International Group CEO Edward Liddy has noted that he’d like to sell off some of his company’s non-core assets in an attempt to pay off a ***massive, $85 billion government loan.***

    In an interesting turn of events, former AIG chief ***Maurice Greenberg*** has expressed his interest in bidding on some of those assets, which could include Transatlantic Holdings and London City Airport.” -Schaeffer Daily Market Blog…

    —So, did we just bail out the London City Airport also???

  7. My kin folks call me Nick says:

    Ok. Somebody let me know when the “Players Ball” is.

    To quote the great HuggyBear. “Theres a whole lot of pimping going down!”

    I would really just prefer you burn the damn tax payers money!

  8. Bucky Plyler says:

    I think there are clear signs that this whole thing has been ginned up for the election-could be politicians-could be heavy investors with capital.

    Time will tell about who is involved by who ends up making the money- somebody will make alot of money. (won’t be tax payers)

    Any local banker will tell you that nothing has changed -if you were eligible for a loan before this stuff hit you are still eligible for a loan. Credit card companies are still doing their business as usual-check your mail box.

    When large banks are failing because of the loans they have made – larger banks want to buy them up quickly.

    Usually banks do such business because there is a profit to be made.

    Bail out, buy in, whatever…I don’t buy it.

  9. GreenAllTheWay says:

    Three of Wachovia’s top executives have change-in-control agreements with the company that could pay them millions if they are terminated or choose to resign following Citi’s (NYSE:C) acquisition of the company’s banking operations.
    Ben Jenkins, head of Wachovia’s general bank, would receive $13.3 million in severance payments and a pro-rated bonus of $3.7 million, according to a securities filing in March.
    Steve Cummings, head of the company’s corporate and investment bank, could nab a $14.3 million severance payment and a bonus of $4.25 million.
    And David Carroll, head of Wachovia’s capital-management group, would get a $14 million severance payment and a bonus of $4 million.
    All three have employment agreements with the bank that provide handsome packages in the event of a change-in-control at the company, which includes a sale of “substantially all of Wachovia’s assets.” Citi is acquiring more than $700 billion of Wachovia’s assets.
    The agreements also call for the immediate vesting of stock options and restricted stock awards that could have netted them millions more but have declined dramatically along with the company’s shares, which are trading in the low single digits.
    In March, the total change-in-control packages including options and stock awards for Jenkins, Cummings and Carroll were valued at $30.2 million, $32 million and $30.6 million, respectively. Those totals were based, in part, on Wachovia’s closing price of $38 per share at the end of 2007.
    In addition to their severance payments, the three executives would also be entitled to medical, dental and life insurance benefits for themselves and their family members for life if they are terminated or resign after the deal closes.
    Steel’s employment agreement does not entitle him to any severance payments, and he may be regretting his “excellent investment” in the company.
    Steel bought 1 million shares of Wachovia stock in July for more than $16 million.
    Since then, Wachovia’s stock has plummeted, and Steel’s options and stock grants received when he took the job appear worthless.
    Shares of Wachovia were hovering just above $3 this afternoon. Steel bought his shares July 24 at prices ranging from $15.32 to $17.02.
    “Wachovia is a great company and I made the investment because I believe in the core strengths of the organization and that it is an excellent investment,” Steel said at the time.
    New York-based Citi will pay $2.16 billion to Wachovia (NYSE:WB) for its retail bank, corporate and investment bank and wealth-management businesses. The company will also assume $53 billion in Wachovia’s senior and subordinated debt.
    Wachovia will remain a publicly traded company headquartered in Charlotte but its businesses will consist only of the retail brokerage and asset-management units. The deal is expected to close before year-end. It has been approved by the directors of both companies and is subject to Wachovia shareholder and regulatory approval.
    Steel, who was named Wachovia CEO on July 9, most recently was Under Secretary for Domestic Finance for the U.S. Department of Treasury. He spent the vast majority of his career at Goldman Sachs & Co.
    Upon joining Wachovia in July he was given options to purchase a total of 1,500,000 Wachovia shares, vesting in three installments, which are part of a long-term incentive grant that could have been worth up to $15 million. That incentive grant consists of those stock options and restricted stock awards, half of which would vest only if the stock traded at $25 for 15 days. The other half would vest only if the stock traded at $30 for the same period. He also got a one-time stock award then valued at $10 million, similarly tied to the stock’s performance–the stock must trade at $20 for 15 days for half to vest, and then at $35 for 15 days for the other half to vest.
    However, under a change of control, Steel’s performance goals for his restricted stock award could be “adjusted equitably based on the consideration received in the relevant transaction.”
    His annual salary is $1.1 million and he has a target annual bonus of $6 million.
    Tom Wurtz, the former chief financial officer of Wachovia, also had an employment agreement and would have been entitled to change-in-control benefits but he recently retired. It’s unclear if his departure was considered a “voluntary termination,” under which he would have been entitled to no payments or benefits, or a termination by the company without cause or by the executive for good reason. Under the latter, Wurtz would receive severance payments of $6.5 million and a bonus of $2.75 million.
    David Zwiener, Wurtz’s replacement who was hired as CFO this month, was given a guaranteed minimum annual cash incentive award of $937,500, to be payable in February.

  10. Dave Bearse says:

    The FDIC standing behind its deal with Citi that privatizes Citi gains concerning its purchase of a cherry-picked component of Wachovia’s business while socializing potential losses, when there’s a much better deal for Wachovia shareholders that doesn’t involve taxpayer guarantees on the table, demonstrates US taxpayers have put up $1.3B to insure that the rich get richer.

  11. ramblinwreck says:

    I have a friend who had over $2 Million in Wachovia stock options which went away instantaneously when the feds swooped in BEFORE the bank had even failed. This week we have codified Democratic Socialism and I hope people are going to be hacked off when they finally figure it out, assuming they ever do.

  12. Icarus says:

    Note the update above. If anyone wants to start placing wagers on what signs will be in front of Wachovia branches 6 months from now, let the betting begin.

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