Wachovia Sell Off to Citigroup
by John Seo
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In a press release delivered September 29, 2008, Wachovia (WB) the fourth largest bank in America, reported its sell off of $812.4 billion in assets to behemoth Citigroup (C) for an estimated $2.1 billion. The deal, only a short time after the WaMu buyout and AIG bailout, includes Wachovia's investment banking, corporate and retail banking and wealth management group. Federal regulators brokered the deal on the condition of sharing future losses of Wachovia's failing mortgage portfolio. Citigroup will assume $53 billion in Wachovia debt. This comes only a short time after showing major losses, a cut in dividends, and over exposure to sub-prime mortgages.

Rumors last week included Wachovia as a takeover target of Wells Fargo (WFC), JPMorgan Chase (JPM) and Citigroup. It is unknown whether Wells Fargo or JPMorgan will have a stake in the Wachovia sell off.

During a 10:44a.m. ET conference call September 29, 2008, CEO of Citi Vikram Pandit says, "We have contained the risk in this transaction…we have contained the asset risk and the operational risk is also contained." Looking forward, Citigroup's Tier 1 capital ratio is expected to reach 8.8% after the transaction, with a leverage ratio of %5 and overall capital ratio at 11.8%. It seems that the FDIC will be taking a $12 billion hit in the deal. Citigroup showed no interest in reentering the asset management sector.

Robert K. Steel, President and CEO of Wachovia stated: "During recent weeks, the financial landscape has changed significantly and presented us with unprecedented challenges. Today's announcement is the best alternative for the company, enabling a resolution on the Golden West portfolio."

In a feeble attempt to retain bondholder and shareholder value Wachovia is continuing operations of their Evergreen Asset Management division and Wachovia Securities the nation's third largest brokerage firm. Two of Wachovia's board of directors will be leaving for Citigroup.

Wachovia's shares fell 92% in premarket trading, and the New York Stock Exchange did not allow normal trading of shares. Wachovia's underwriters included Goldman Sachs, Perella Weinberg Partners and Wachovia Securities.