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Wachovia

Discussion in 'Money & Finance Forum' started by meatpile, Jun 17, 2008.

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Jun 17, 2008 at 3:50 PM #1

meatpile 7-9

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All up in Boo's mama

Ouch.

Anybody trying to catch the falling knife? Traded under 17 today. I hope JP Morgan doesn't.

BAC is low, too. But not wachovia low.
Jun 17, 2008 at 3:53 PM #2

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meatpile said: ↑

Ouch.

Anybody trying to catch the falling knife? Traded under 17 today. I hope JP Morgan doesn't.

BAC is low, too. But not wachovia low.
Click to expand...

The 10% rule would put a hurting on a JP/Wachovia deal. However, there are ways around that, just ask BofA.
Jun 17, 2008 at 4:51 PM #3

wolfpac Full Access Member

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I would bet Chase really wants Wachovia especially with this cheap of a stock price and Wachovia's really good branch system but yeah, the 10% cap would shut that down unless they could get the FDIC to include Credit Union Deposits into the calculation which would take an act of Congress (Credit Unions would add another 1.1 Billion into the calculation on top of the 5.5 Billion Commercial Banks hold - as of June 2007 which is the most up-to-date info the FDIC is showing). Even if they could get that done, I still have them at about 12-13%. Other words, no deal.
Jun 17, 2008 at 6:19 PM #4

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I bought in today when it went under 17.
Jun 18, 2008 at 8:28 AM #5

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wolfpac said: ↑

I would bet Chase really wants Wachovia especially with this cheap of a stock price and Wachovia's really good branch system but yeah, the 10% cap would shut that down unless they could get the FDIC to include Credit Union Deposits into the calculation which would take an act of Congress (Credit Unions would add another 1.1 Billion into the calculation on top of the 5.5 Billion Commercial Banks hold - as of June 2007 which is the most up-to-date info the FDIC is showing). Even if they could get that done, I still have them at about 12-13%. Other words, no deal.
Click to expand...

Here's the deal on the deposit caps....

It's long but a good read if you're interested.

American Banker
By Todd Davenport

The Wachovia Corp. deal rumors triggered by G. Kennedy Thompson's
downfall were just part of Wall Street's standard playbook.
It was not even particularly surprising that the favored acquirer in
those rumors was JPMorgan Chase & Co., since it has emerged - for
reasons that will not be explored here - as the acquirer of choice
in just about every market rumor these days.

But what was surprising as Wachovia's fate was bandied about was the
fact that one not-so-trifling detail went unmentioned: A pairing of
JPMorgan Chase and Wachovia would be illegal, or at least probably
illegal, since it would leave one company with roughly 13.5% of the
nation's deposits.

As simple as it sounds, the 10% deposit cap specified in the Riegle-
Neal Interstate Banking and Branching Efficiency Act of 1994 is
murky. Even familiar concepts like "bank" and "deposit" take on new
meaning under the law, and other questions, such as why the cap
exists in the first place, are even harder to crack.

For now interpretation of the deposit cap rules has been left
largely to the Federal Reserve Board, which, as a philosophical
matter, likely would prefer that the cap did not exist.
As a practical matter, it has rarely emerged as a barrier to deals.
Whenever Bank of America Corp. has come within sniffing distance of
the threshold - through deals for FleetBoston Financial Corp.,
LaSalle Bank Corp., and Countrywide Financial Corp. - either it has
whittled deposits or the Fed has found a way to explain why the
threshold does not matter.

So the good deal of skepticism about whether the cap has any
relevance to banking mergers and acquisitions is not surprising.
"If people want to do a deal, the lawyers will figure out a way to
structure that deal to get around that cap," said Gil Schwartz, a
former Fed lawyer and now a partner at Schwartz & Ballen
LLP. "Assuming the regulators feel the deal should be done, they'll
cooperate."

There may be no loophole bigger than the one illuminated in the
Fed's approval of B of A's Countrywide deal: Under the statutory
language of Riegle-Neal, thrifts do not count.For the most part, that is. For the purposes of the cap, a bank holding company must include the deposits held by its thrift affiliates in determining where it stands in relation to the cap if it is looking to acquire a commercial bank. But the math is
irrelevant if its target is a federal savings bank.

The implications are clear. B of A, which by the Fed's calculations
would have 10.9% of the nation's deposits once the Countrywide deal
closes, likely would be barred from acquiring any commercial bank,
no matter how small. But it would be perfectly capable of acquiring
Washington Mutual Inc. and the $192.4 billion of deposits held by
its thrift subsidiaries.

The thrift loophole makes little sense at first blush and even less
sense upon further review. After all, the Fed's definition of
a "deposit" under Riegle-Neal (an effort that required its own
appendix, over 500 words, and two pages in the central bank's March
2004 approval of B of A's deal for Fleet) clearly includes thrift
deposits. And in justifying numerous deal applications that bumped
up against or exceeded market-concentration limits, the Fed has half-
weighted thrift deposits to give the acquirers more breathing room.
A little background on the cap might offer some explanation for the
apparent inconsistency of those facts. Community banks lobbied hard
against Riegle-Neal, fearing that unrestricted interstate banking
would be their death knell. State regulators also were generally
against it, fearing that large out-of-state banks would swoop in and
merge their reason for being out of existence.

But they were no match for the big-bank coalition that supported the
bill, and the deposit cap - which had been discussed in negotiations
leading up to the 1991 passage of the Federal Deposit Insurance
Corp. Improvement Act - was seen as a minor sacrifice to buy off
opponents.

"We were outgunned," said Ken Guenther, who lobbied against the bill
as head of the Independent Community Bankers of America. "Passage of
the bill was inevitable, and they wanted to throw a bone to the
community banks."

There were over 13,000 bank and thrift charters at the end of 1993;
there are roughly 8,500 now.

"History speaks for itself - after that bill passed, you had a
formidable wave of bank mergers," Mr. Guenther said. "The cap was
not effective in stemming or curtailing major bank mergers."
The cap may be due for a resurgence. It is a far more pressing issue
now than it was in 1994, when no bank was anywhere near it. And it
is finding relevance as a limit on concentration, rather than market
share - as many people say was the original intent.

"It's an artificial number that was picked out of the air, but it
had a philosophical underpinning: Congress was concerned about
concentration of banking resources nationwide," Mr. Schwartz
said. "The deposit cap is not an antitrust measure; it's not about
unfair competition."

The idea, of course, is that no one bank should be so big that its
economic and political influence dictates a unique course of action.
As the "too big to fail" debate ripens in the fertilizer of the
current financial markets, there may be little political will to
remove such a limit.

It is widely imagined that the bill affects only B of A, but some
rough numbers show this is clearly not the case. Keep in mind that,
given the complexity of calculating deposits - those held by the
potential acquirer and the national total - call-report data is only
a strong starting point.

The Fed's June 5 approval of Countrywide's acquisition implied a
national aggregate of about $7.09 trillion as of the end of last
year. JPMorgan Chase reported $534 billion of domestic deposits as
of March 31, or roughly 7.5% of the national total. Wachovia
reported $421 billion, or 5.9% of the national total. After buying
Countrywide, B of A would hold $954 billion, or 13.5% of the
national total.
Click to expand...
Jun 18, 2008 at 8:43 AM #6

wolfpac Full Access Member

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Nice link! I knew BofA went over it with several of the last mergers but I wasn't aware that they were quite that flexible with it. I had always thought that was supposed to be a hard cap.
Jun 18, 2008 at 9:45 AM #7

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wolfpac said: ↑

Nice link! I knew BofA went over it with several of the last mergers but I wasn't aware that they were quite that flexible with it. I had always thought that was supposed to be a hard cap.
Click to expand...

I have a feeling the cap will eventually go away, or be raised. If not, it will put US banks at a disadvantage compared to foreign banks looking to expand in the US. US banks already have stricter capital rules than their foreign counterparts.
Jul 10, 2008 at 8:17 AM #8

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I was thinking the former BofA guy. Hope this helps the stock.

Wachovia names Robert Steel new CEO

SAN FRANCISCO (MarketWatch) -- Wachovia Corp. said late Tuesday it has appointed Robert Steel as the company's new Chief Executive, President and member of the board of directors, effective immediately.

Steel most recently served as Under Secretary for Domestic Finance for the U.S. Department of Treasury. His appointment ends a search that began at the Charlotte-based bank in early June with the departure of former CEO Ken Thompson.

"Bob is a distinguished and widely respected leader in the financial services sector whose vast experience and deep knowledge make him the ideal candidate to lead Wachovia," Wachovia Chairman Lanty Smith said in a prepared statement.

Wachovia, which has been beset by bad news related to the nontraditional mortgage business it acquired two years ago when it bought Golden West for $25 billion, also said its second-quarter results will be hurt by "higher provision expense," according to a prepared release.

Wachovia said its second-quarter results, expected to be announced July 22, will include an after-tax loss between $1.23 and $1.33 a share. Charge-offs for the quarter were roughly $1.3 billion, or 1.10% of loans on an annualized basis, Wachovia said
Click to expand...
Jul 10, 2008 at 8:31 AM #9

wolfpac Full Access Member

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Interesting that he is a former Goldman Sachs guy (28 years there) at the same time Goldman is looking over their books.

BTW, they also announced last night that they may be looking at a 2.6-2.8 billion loss in the 2nd quarter. It will be interesting to watch the market's reaction with the new CEO at the same time they are coming clean about their books.
Jul 10, 2008 at 10:00 AM #10

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wolfpac said: ↑

Interesting that he is a former Goldman Sachs guy (28 years there) at the same time Goldman is looking over their books.

BTW, they also announced last night that they may be looking at a 2.6-2.8 billion loss in the 2nd quarter. It will be interesting to watch the market's reaction with the new CEO at the same time they are coming clean about their books.
Click to expand...

The stock was below $15 so I'm not sure how much further down it can go. It's looking like a good buy if you're a long term investor. Either the company gets its act together on its own and the stock eventually recovers, or the company gets purchased and the stock gets a boost. I don't see the bank failing.

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