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What will new Wachovia look like?

By Christina Rexrode
crexrode@charlotteobserver.com

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The impending sale of most of Wachovia Corp. has many wondering what the sliver that's left behind will look like.

New York's Citigroup is buying Wachovia's consumer bank, investment bank and wealth management unit. The divisions it is not taking – namely, the retail brokerage and the asset management businesses – will still function as a public company called Wachovia, which will remain headquartered in Charlotte, the company says.

Analysts say it's hard to estimate what the remaining, slimmed-down Wachovia will be worth, and some predict that it, too, will be bought up. Except for a one-page news release on Monday to announce the sale, Wachovia has put forth virtually no information about what the new company will look like. Wachovia and Citi have both said that many details of the acquisition have yet to be hammered out. Wachovia spokeswoman Christy Phillips-Brown said today the bank is “working as quickly as possible to finalize the definitive agreement.”

One thing is certain: The new Wachovia will be significantly smaller than the current one. Citi is buying up about $700 billion of Wachovia's $800 billion in assets.

The new Wachovia will retain retail brokerage Wachovia Securities and asset management unit Evergreen Investments, as well as its retirement services and insurance services divisions.

Wachovia Securities is one of the country's largest brokerage firms. With 14,600 financial advisers, it's in line with Citi's brokerage. Now that it's losing its partnership with Wachovia's consumer bank, it could be eager to team with another one, some analysts speculate. Many banks like to pull consumer-banking customers into more advanced services, including selling stocks, bonds and mutual funds. Gerard Cassidy, an analyst at RBC Capital Markets, predicts the remaining Wachovia divisions will be bought by private-equity firms or other asset managers.

Several analysts estimate that the remaining company could be worth between $4 and $7 a share, though they also caution that their estimates could change drastically when more information is released. “We found the disclosure on this deal to be one of the worst we can recall of a major transaction,” wrote Andrew Marquardt of Fox-Pitt Kelton Cochran Caronia Waller, who estimates the remaining company could have a worth that's in negative territory, as low as -$2.13 per share.

It's not clear which liabilities the remaining Wachovia will be responsible for. Robert Patten, an analyst at Morgan Keegan & Co. Inc., wondered if the new Wachovia would still be on the hook for dividends for preferred stock holders, a charge of about $770 million annually. “It is likely that the preferred stockholders could end up not receiving anything in the surviving entity,” he wrote in a note Monday.

Tuesday, the day after the sale was announced, Wachovia released a statement saying it “remains well capitalized” and continues “supporting its operating subsidiaries including Wachovia Securities and Evergreen Investments.”

In a letter to employees Monday, Wachovia chief executive Bob Steel wrote: “Since many details of this agreement are still being finalized, definitive answers to many of your questions remain unknown at this point. … As we work through the deal thoughtfully, we will keep you informed.”

Wachovia says that Citi will keep the combined new consumer bank headquartered in Charlotte, though Citi has promised only to maintain a “strong presence” in the city. In a conference call Monday, Citi chief executive Vikram Pandit said Citi plans to “fold our U.S. retail bank, which is about a third the size of Wachovia's retail bank, into the Wachovia platform.”

Citi spokeswoman Shannon Bell declined to elaborate on Pandit's comments.

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