Discussion on Wachovia - Retail

Schumpeter Reincarnate Joined: 24 May 2008 Posts: 46269

http://ml-implode.com/ailing/l.....10-02.html

Posted: Fri Oct 10, 2008 12:19 am

I think that in the long run Citigroup was wise to take a pass on buying the garbage which came along with Wachovia's branches.

The 10/9/08 PM online edition of the Wall Street Journal says:

"Citigroup, under Chief Executive Vikram Pandit, decided to abandon the negotiations due to its concerns about the quality of the assets on Wachovia's books. "They're even worse than we thought," said a person close to Citigroup. In the discussions with Wells Fargo, the outcome was looking like Citigroup would be stuck with assets that "turned out to be worthless and dramatically overvalued," the person said.

Citigroup eventually came to believe that Wachovia's balance sheet was so polluted with bad real-estate loans that Wells Fargo couldn't afford to buy the company, especially not for the $7 a share it agreed to last Friday, without government help. As a result, Citigroup hoped that Wells Fargo, pushed by regulators, would be more inclined to reach a compromise that suited Citigroup.

On Wednesday evening, the talks appeared to be nearing an impasse, but negotiators on both sides still held out hope that a compromise could be fashioned.

But Wells Fargo negotiators wouldn't budge, said one person involved in the talks. As a result, Citigroup executives decided early Thursday afternoon to back away. They didn't notify Wachovia or Wells Fargo executives about the decision, leaving the banks' executives to learn about it when Citigroup issued a news release shortly after 5 p.m. The company faxed the release to judges who are hearing the multiple lawsuits filed by the opposing parties."

This transaction is just like what happened in the early days of the savings and loan crisis. Healthy institutions bought large insolvent ones. Eventually the hidden sacks of garbage taken over by the healthy institutions exploded, taking down those acquirer institutions towards the end of the savings and loan crisis.

In my mind, tomorrow is Day One on the Count Down to Wells Fargo's implosion.

Dud? Joined: 31 Jul 2008 Posts: 5 Location: Nevada

The quality issue is just to pacify shareholders who think Citi now looks like a bozo company. They're right.

The government will buy all the toxic waste, so Wells gets 448B in deposits AND cash from the government. Not to mention branches in new states, and some good assets in money management etc.

I'm not saying Wells isn't headed for difficulty, but who isn't?

Hey Vikram, next time bring your wallet !