Why wachovia is now wells fargo

When municipal securities are sold to investors, portions of the proceeds often are not spent immediately by municipalities but rather temporarily invested in municipal reinvestment products until the money is used for the intended purposes. The proceeds of tax-exempt municipal securities generally must be invested at fair market value, and the most common way of establishing that is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.

At the time, Wachovia was considered "well capitalized" by regulatory standards and until very recently had not generally been thought to be in danger of failure, so there were fears that the failure of Wachovia would lead investors to doubt the financial strength of other organizations in similar situations, making it harder for those institutions to raise capital and other funding.

In addition, if a least-cost resolution did not support foreign depositors, the resolution would endanger what was a significant source of funding for several other major U. Creditors would also be concerned about direct exposures of other financial firms to Wachovia or Wachovia Bank, since these firms would face losses in the event of a default. In particular, losses on debt issued by Wachovia and Wachovia Bank could lead more money market mutual funds to "break the buck," accelerating runs on these and other money funds.

The resulting liquidations of fund assets--along with the further loss of confidence in financial institutions--could lead short-term funding markets to virtually shut down; these markets were already under extreme pressure in the fall of The consequences of an insolvency and unwinding of Wachovia under the least-cost resolution test would also have disastrous effects for an already weakened economy.

Business and household confidence would be undermined by the worsening financial market turmoil, and banking organizations would be less willing to lend due to their increased funding costs and decreased liquidity. These effects could contribute to materially weaker economic performance, higher unemployment, and reduced wealth.

For these reasons, on September 28, , the Board by unanimous vote determined that compliance by the FDIC with the least-cost requirements of the FDI Act with respect to Wachovia Bank and its insured depository institution affiliates would have serious adverse effects on economic conditions and financial stability, and that action or assistance by the FDIC permitted under the systemic risk exception within the act would avoid or mitigate these adverse effects.

Similar determinations were made by the board of directors of the FDIC and the Secretary of the Treasury, in consultation with the President, which allowed the FDIC to consider measures outside the least-cost resolution requirement to resolve Wachovia, including the provision of so-called "open bank" assistance.

The FDIC and the Federal Reserve each publicly announced that the Citigroup bid had been received after completion of an FDIC-supervised bidding process and that the parties would proceed to negotiate final details.

This restored some confidence in Wachovia and the liquidity pressures on Wachovia stabilized. To allow Citigroup and Wachovia to finalize their agreement in principal and complete due diligence, the two firms entered into an exclusive dealing agreement for the period from September 29 to October 6. During this period, Citigroup filed an application with the Federal Reserve seeking expedited approval of its proposed acquisition of Wachovia.

Wells Fargo's Second Proposal On October 2, during the period Citigroup and Wachovia were negotiating a final merger agreement, the board of directors of Wachovia received a communication from Wells Fargo that included an offer from Wells Fargo to acquire all of Wachovia's stock by merger. On October 3, , Wachovia's board of directors voted to accept the Wells Fargo offer, and the parties signed a binding merger agreement.

Upon becoming aware of this, Citigroup informed Wachovia and Wells Fargo that Citigroup considered the merger agreement to be a violation of the exclusive dealing agreement between Citigroup and Wachovia. Citigroup demanded that Wachovia and Wells Fargo terminate their proposed transaction. Citigroup on the same date sent a separate letter to the Federal Reserve protesting any Wells Fargo application to the Federal Reserve to acquire Wachovia on a number of grounds. The statement indicated that the Wells Fargo proposal had not yet been reviewed and that regulators would be working to achieve an outcome that protected all Wachovia creditors and promoted market stability.

Litigation and Standstill On October 4, Citigroup filed suit against Wachovia and Wells Fargo, seeking a temporary restraining order, preliminary and permanent injunctive relief, specific performance of the exclusivity agreement, and punitive damages. On October 5, Wachovia filed its own motion for a temporary restraining order preventing Citigroup from taking any steps to interfere with the implementation of the Wachovia-Wells Fargo merger agreement.

Due to concerns that the competing legal claims of Citigroup and Wells Fargo could themselves become a destabilizing influence on those institutions, Wachovia, and the banking system generally, representatives of the Federal Reserve attempted to facilitate negotiations among Wachovia, Citigroup, and Wells Fargo to resolve their disagreements. To allow these discussions time to proceed, Federal Reserve officials became involved in facilitating negotiations for a cease-fire or standstill to the litigation among the three firms.

A standstill agreement was finalized on October 6, under which Wachovia, Citigroup, and Wells Fargo agreed to suspend for two days all formal litigation activity, including discovery, and to otherwise cooperate to preserve the status quo with regard to any litigation.

This agreement was extended until October By acquiring Wachovia, Wells Fargo will now gain the big retail banking network it has long sought. Though it has long been well-regarded by bank analysts and observers — and counts Warren E.

Buffett as one of its largest shareholders — the firm has not had a significant presence east of the Mississippi. Under the terms of the deal, Wachovia shareholders will receive 0. The big question about Wachovia has been its loan portfolio, which has been saddled with billions of dollars in troublesome adjustable-rate mortgages it acquired from its merger with Golden West Financial in Wachovia ended the program earlier this year. A big-enough capital-raising campaign would alleviate pressure on Wells Fargo.

Louis will remain the headquarters of Wachovia Securities as it was the home base of A. Edwards, the retail brokerage that Wachovia bought in The very last bank I ever wanted to be a customer of was Citibank. Welcome, Wells. The Citi acquisition was a New York mugging and a massive Fed engineered rip-off, an insult to employees and an idiotic move from the point of view of the economy as a whole. It worked, so, in the eyes of our government I am sure that would validate the deceit—wonder if anyone will ever admit to this scheme.

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