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Daily Insurance Industry News
Saturday 21st of October 2017
September 30, 2008

Citigroup acquires Wachovia in rescue deal

by David Masters

Story link: Citigroup acquires Wachovia in rescue deal

Since opening in Winston-Salem, North Carolina, in 1899, Wachovia has run as an independent bank for a period covering three centuries, surviving even the great depression of the 1930s.

Yet after 129 years, the great financial crisis of 2008 has brought the independence of America’s fourth largest bank crashing to the ground.

From spring 2006 to the present day Wachovia’s stock fell from $60 per share to $1.84 per share – the company once worth over $100 billion is now worth less than $4 billion.

On the verge of collapse, Wachovia was rescued in a government brokered $2.2 billion all stock buyout by Citigroup Inc.

New York-based Citigroup will absorb as much as $42 billion of Wachovia losses.

The bank’s fall from grace follows criticism by analysts and the local community that started in 2001 when Wachovia was taken over by the risk-taking First Corp Union.

Before the takeover, Wachovia was known as a well-run, conservative, low-risk bank.

Tony Plath, finance professor at the local Charlotte university, said North Carolina and Winston-Salem will ‘pay a heavy price’ for the bank’s greed in seeking a short term profit at the expense of customer interests.

Bank of America boss Hugh McColl Jr. called the takeover ‘a body blow to the city’.

Wachovia customers have been told that the takeover will provide ‘full protection for all their profits’, and that the bank will continue normal operations.

Its 120,000 staff, however, have cause to be concerned, with big layoffs anticipated.

Citigroup said it expects to cut $3 billion in costs by axing ‘overlapping functions’.

 

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