Looks like Wells Fargo offered to pay more for Wachovia. This means that they’ll be taking it over instead of Citi. Details to follow in a new post (which I’ll link here). As a Wachovia customer, I think I prefer Wells Fargo to Citi.
But not fail. Wachovia was bid for by Citigroup yesterday (Sept 29) before it had a chance to fail. Unlike the other recent bank takeovers (and bank failures), this one hit home since Micah and I have our paper checking set up at Wachovia. I found myself reacting to it on two levels: first as a taxpayer, then as a customer.
Details of Citigroup’s Wachovia Takeover
As a taxpayer, I was pleased that Citigroup stepped in when it did. Because Wachovia hadn’t failed, Citigroup simply bought the entire deposit network. No need for FDIC insurance here means less taxpayer money involved.
Now, the FDIC may be involved in the loan part of the transaction. Not surprisingly, what sunk Wachovia was its loans. Citigroup will be absorbing over $300 billion in loans and has agreed to cover up to $42 billion in losses on these loans. The FDIC will have to cover anything more than that.
Again, as a taxpayer, I’m pleased that at least Citigroup will take the first $42 billion in losses. I hope that it won’t even get to that. But loanees all over the nation need to wise up so this won’t happen. I remember reading an article by Gather Little by Little (who works at one of the large banks), where he revealed that people are paying their credit cards before their mortgages. Yes, they should pay off both, but if it comes to one or the other the mortgage should be first.
Apparently, this isn’t the last of Wachovia. While they’ve sold their retail and commercial banking operations (along with the loans that got them into this mess), Wachovia will continue its operations as a retail brokerage, insurance provider, and retirement plan company.
For Wachovia Customers
For now, banking will go on as usual. If the deal is approved then Citi will essentially be running the separate Wachovia company and transitioning Wachovia branches and customers into Citi branches and customers. In a couple years, all Wachovia customers will be Citigroup customers.
Of course, even as we stay with Wachovia things may be shaken up along the way. I certainly don’t want to move my account now, but there a part of me that says “I specifically didn’t want to bank with Citi. I’d rather move my account.” But that’s not a good idea right now.
a) Who would we bank with? At this point it’s hard to tell who is solid and who else will fail. I still feel pretty confident about ING Direct, where most of our money is. But I would like something brick-and-mortar with easy check-writing. And national, so we can move and still hopefully have branches around. So far, Citigroup/Wachovia still fits those requirements. It would be annoying to move to another bank only to have it fail or be taken over.
b) Pulling my money will just create more instability. I don’t want to be part of a panic or a run on the bank.
So for now and at least until things quiet down, we will continue to do part of our banking with Wachovia/Citigroup. Our money should be as safe there as anywhere. When things have quieted down and we know who’s still standing, we may do some more shopping around to see who offers the best banking package. But at this point, that wouldn’t be a smart move for us personally or for us as players in the economy.