Fate of new HQ in hands of Citigroup

Monday's Citigroup-Wachovia deal and the federal bailout of Wall Street firms have raised big questions about the economy, the state of banking and the impact on everyday people. UNC Charlotte finance professor Tony Plath answered reader questions on the Observer's Wall Street blog.

Q: What do you foresee happening with the new Wachovia headquarters being built here?

That decision now rests with Vikram Pandit and the top management group at Citi. In all likelihood, the combined Citi-Wachovia will occupy a portion of the new building, but the combined firms' need for uptown Class-A office space will be reduced from Wachovia's original plans. That will cause an increase in uptown Charlotte's high-end office vacancy rate and, over time, the additional office space once planned to be occupied by legacy Wachovia operations will be occupied by other companies as Charlotte grows.

Q: With Wachovia's troubles, it raises questions about other area banks such as BB&T and the new kid on the block, Fifth Third. What does their financial future look like?

This is a challenging environment for virtually all banks in the U.S., but North Carolina remains one of the best business environments for banking in the country. BB&T reflects this strength, and its conservative business model practiced over the course of the last 20 years or so makes it one of the strongest banks in the country right now. Fifth Third, on the other hand, is struggling with credit issues and growth issues throughout its footprint. The Ohio bank recently entered North Carolina with its purchase of First Charter, and Florida with the purchase of a community bank in the Jacksonville market, but the bank is struggling with credit issues traceable to the ongoing real estate downturn throughout much of its market territory. It recently cut its dividend by two-thirds.

Q: If I have a checking account, 401(k), mortgage or home equity line of credit with Wachovia, what changes can I expect to see?

Virtually none. The FDIC used a mechanism known as “Open Bank Assistance” to assist with the sale of Wachovia to Citigroup, which means that Wachovia never failed as a corporation prior to its sale to Citi. Rather, the FDIC assisted Wachovia in locating a buyer for the bank, and arranged to cover a large portion of Wachovia's questionable $312 billion mortgage portfolio in exchange for $12 billion worth of warrants for Citigroup's common and preferred stock. Given this form of federal assistance for the sale of Wachovia to Citi, all of the account relationships you currently maintain with Wachovia will remain unchanged after the bank's sale to Citigroup. It's not yet clear whether your checks will eventually change to reflect the Citigroup corporate name.

Compiled by Nichole Monroe Bell

See more questions and answers at the Observer's Wall Street blog at char lotte obser