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 business – will still function as a public company called Wachovia, which will remain headquartered in Charlotte, the company says.
But some predict that it, too, will be bought up, and much of what is left behind will likely not be in Charlotte. Wachovia has released almost no information about what the slimmed-down new company will look like, except for a one-page news release issued Monday, the day the sale was announced.
Wachovia and Citi have both said that many details of the acquisition have yet to be hammered out, and the deal still requires the approval of regulators and Wachovia shareholders. The merger documents have not been released, and Citi said in its announcement Monday that the deal is pending “definitive documentation.” Wachovia spokeswoman Christy Phillips-Brown said the bank is “working as quickly as possible to finalize the definitive agreement,” but could not provide a more specific timeline.
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 $800billion in assets, and the units it is buying encompass at least half of Wachovia's employees.
Wachovia said 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.
The new Wachovia will retain retail brokerage Wachovia Securities, which offers investment advice and sells stocks, bonds and mutual funds. It will retain asset management unit Evergreen Investments, which manages mutual funds and institutional accounts. And it will keep the retirement services and insurance services divisions.
Wachovia Securities is one of the country's largest brokerage firms. It is bolstered by last year's acquisition of A.G. Edwards – which is only about halfway through the integration process. The unit has brokers in offices around the country and significant operations in Charlotte, though its home base is in St. Louis. Evergreen has most of its employees in Charlotte and Boston.
Many banks like to pull consumer-banking customers into more advanced services, such as sales of stocks and annuities and estate planning. Now that those units are losing their partnership with Wachovia's consumer bank, they could be eager to team with another one, some analysts speculate.
Unwinding the businesses will be a challenge. In recent years, Wachovia has worked to increase cooperation between divisions, encouraging referrals between bankers and brokers, for example. Customers also can monitor all of their banking and brokerage accounts on one Web site.
Gerard Cassidy, an analyst at RBC Capital Markets, predicts the remaining Wachovia divisions will be bought by private-equity firms or other asset managers. Gary Townsend, a former analyst who has launched a Maryland-based investment firm, said the remaining units may consider buying a consumer bank.
This week, Wachovia Securities president Danny Ludeman told his troops that the firm had a strong value and could consider changing its name. Evergreen CEO Peter Cieszko held a conference call with his unit that gave employees the impression that the remaining Wachovia could eventually be bought or receive an investment from outside investors, but nothing was certain.
It will also be difficult to determine which units the dozens of Wachovia subsidiaries fall under, said a source familiar with the bank's operations. And analysts say that it's hard to estimate how much the remaining company will be worth. Several predict it will 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.”