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Wachovia, The Bank, Saved by Citi

Another day, another hasty acquisition of a hurtin’ financial services firm pushed by the government—in this case, the FDIC.

Another day, another hasty acquisition of a hurtin’ financial services firm pushed by the government—in this case, the FDIC. What’s interesting about today’s announcement—Citigroup’s acquisition of Wachovia’s banking assets—is that Citigroup apparently thinks its got enough financial advisors: Citi declined to buy the retail brokerage business—Wachovia Securities (and A.G. Edwards)—and the asset management unit (Evergreen). Wachovia’s private bank is included in the deal.

Wachovia Securities advisors are, on average, too small, according to one Citi source familiar with the negotiations. But the Wachovia private bank is a good fit, and will add to its private bank’s $5 million to $50 million high-net-worth focus.

“Why would we want to 20,000 (sic) more financial advisors?” says the source. (The number of Wachovia advisors is actually 14,600.) “Wachovia [Securities] is not a good fit, strategically.” Citi already has Smith Barney with 14,893 retail financial advisors. “We just need our advisors to be more efficient, gather more assets.”

In some ways, A.G. Edwards is right back where it was, only bigger. Acquired in an all-stock deal last year, AGE is now independent again, albeit under the Wachovia Securities name. Will the firm remain on its own? Will Prudential Financial, which own 38 percent of Wachovia Securities, buy the remainder? (Of course, that would be a throwback to the manufacturer/distribution model that was thought to be hopelessly conflicted.) Or will a suitor emerge later, once the dust has settled? (We are of the opinion that this deal was a very hurried one to prevent Wachovia from going insolvent—it has $122 billion in dodgy loans it inherited from its purchase in 2006 of Golden West.)

For now, the official word is (see press release): “Wachovia will remain a public company and retain its asset management, retail brokerage, and certain select parts of its wealth management businesses, including the Evergreen and Wachovia Securities franchises.”

A spokeswoman for Wachovia put it this way to Registered Rep. in an email: “At this time, the specifics behind the structure of the firm moving forward are unclear. We can say that today's announcement does not impact the scheduled retail brokerage integration with A.G. Edwards, which is on track for final integration in February 2009, and that Wachovia Securities retail brokerage will maintain its headquarters in St. Louis. The firm will continue to operate as a subsidiary of Wachovia Corp., which will remain a public company headquartered in Charlotte.”

Advisors who post on Registered Rep.’s advisor forum don’t seem so happy. Some are lamenting the unkind fortune of AGE reps who were minding their own business before being snapped up by Wachovia and are now muddied by the credit crisis they had nothing to do with:

A Branch Manager Speaks
One veteran branch manager says, “It means we’re going it alone. For now, it’s business as usual—without Wachovia Corporation and their management.” At first, he says, “Wachovia reps and branch managers were freaked out because no one knew what was going on. But once we got an internal memo [from Daniel Ludeman, president and CEO of Wachovia Securities], things are better. The company basically said to us, ‘Dad ran out because you’re big enough to take care of yourself.’ We will be the biggest indie on the street. What the reps do, however, depends on whether they believe Ludeman or not. Some have come to me—and I’m asking them to stick around to see. Ludeman—and Wachovia Securities—can make brokers stay through good communication and the promise of sound capital.”

One Wachovia Securities advisor says, “We are still independent … what will happen to that independence is an interesting question … It’s a point to still be reckoned with … We were surprised, shocked that it came to this … Where we go from here, is still to be determined. Wachovia Securities has always been the most profitable portion of the bank. Either someone will want us, or we will go forth independently and boldly where no man has ever gone before.”

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