Lowcountry braces for fallout from bank's sale

Weakened financial giant Wachovia Corp., reeling from losses in its mortgage business, was forced Monday to sell its entire banking operation to Citigroup Inc. for $2.1 billion in a deal that likely will have broad implications for the Charleston region.

The sale, which was brokered by federal regulators, marks a dramatic slide for the Charlotte-based company, once known for its conservative lending practices and its taste for acquisitions.

The Federal Deposit Insurance Corp. asserted Monday that Wachovia did not fail, and that all depositors are protected. It also said there will be no cost to the Deposit Insurance Fund.

With officials anticipating the sale to close by the end of the year, Wachovia urged customers Monday not to panic.

"Wachovia customers should continue banking as usual, and feel confident that their deposits are secure," the company said in a statement. "Customers have full access to their accounts with Wachovia, and our focus on providing customers with exceptional customer service remains the same."

Wachovia is Charleston's largest bank based on deposits, according to the latest government figures. As of mid-2007, it had nearly $2.4 billion in local deposits, giving it a 27 percent market-share.

Statewide, Wachovia accounts for 3,300 jobs at 137 branches. Employees have grown increasingly worried in recent weeks about the future and fate of the troubled company.

"There's a lot of uncertainty across the board for a lot of people right now," said College of Charleston economist Frank Hefner.

In the three-county region, the company has about 530 workers at 25 branches. A call to Wachovia's executive offices in Charleston was referred to the main headquarters in North Carolina. Spokeswoman Christine Shaw said the company is unsure how the sale will affect local operations "at this point."

"It's just too soon to tell," Shaw said.

The company's chief executive officer, Robert Steel, said much the same in a memo to employees.

"What is important to note, however, is that nothing changes today for employees or customers," he said. "Please continue serving customers as usual. As we work through the deal thoughtfully, we will keep you informed."

Wachovia Corp. will remain a publicly traded company. Its main holdings will be Wachovia Securities, the nation's third-largest brokerage firm; Evergreen Asset Management; Wachovia Retirement Services; and Wachovia Insurance Services.

The sale agreement followed a fevered weekend courtship, as Citigroup and Wells Fargo & Co. both were reportedly studying the books of Wachovia, which suffers from mounting losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.

The deal greatly expands Citigroup's retail franchise, giving it a total of more than 4,300 U.S. branches and $600 billion in deposits, and secures its place among the U.S. banking industry's Big Three, along with Bank of America Corp. and JPMorgan Chase & Co.

Citigroup said it expects to reduce expenses by more than $3 billion annually as it consolidates certain functions. But with few overlaps in their regional operations — Citi has no branches in Charleston — the company projects closing fewer than 5 percent of the combined retail offices.

Wachovia, like Washington Mutual Inc., which was seized by the federal government last week, was a big originator of mortgages that offer low introductory payments and allow borrowers defer some interest payments. Delinquencies and defaults on these types of mortgages have skyrocketed in recent months, causing big losses for the banks.

Marilyn Lewis called the forced sale "another example of the failed financial system" as she left the Wachovia branch at Market and Meeting streets in downtown Charleston. She said she had no qualms about the ownership change, as long as Citigroup remains financially strong.

Virgil Tucker said he's been a Wachovia customer since it entered the local market in 1991 and previously banked with lenders that were eventually purchased by Wachovia. He said customer service has improved with each acquisition and that as long as Citigroup treats "you as fair as what Wachovia did, it's fine."

"Big banks are taking over." Tucker said.

Thomas Masi, owner of Thomas Masi Financial Services in Charleston and Columbia, said he's telling clients not to fret over money they have at Wachovia.

"That's federally secured," Masi said.

Masi noted that the Citigroup purchase would amount to little more than a formality for banking customers.

"It's just a name change," he said.

But for stockholders, he said, the situation is more dire.

"I think it's kind of late to bail out," Masi said.

As Wachovia's fortunes have waned, its investors have suffered. This year it has cut its dividend twice to conserve cash.

A year ago shares of the widely held company sold for about $50. As details of its takeover unfolded, Wachovia shares plunged 91 percent to 94 cents in pre-market trading from about $10 on Friday. Trading in the company's shares was delayed until Monday afternoon, when the stock closed at $1.84.

Don Allen of Mount Pleasant-based Hampton Capital Management said "a lot" of investors in the Carolinas own Wachovia stock, either directly or through mutual funds and retirement plans.

"It's a tragedy, that's what it is," Allen said.

Hefner, the College of Charleston economist, predicted the sale of Wachovia could have "broad ramifications" for the region, especially for Wachovia employees.

"There are a lot of neighbors who are going to be impacted by this. There are new corporate identities and new corporate ways of doing things," he said.

The inevitable shift in power away from Charlotte to New York, where Citigroup is based, could trickle down to the Lowcountry in other ways.

For example, numerous community organizations and events have received financial support from Wachovia over the years. Whether that will continue or be diminished under new ownership is an open question, Hefner said.

"But quite honestly, that's going to be the last thing on anyone's mind for the next two years," he said.

The Spoleto Festival USA already has felt the impact of Wachovia's mounting financial troubles. The bank had donated $100,000 to the spring arts extravaganza annually for the past 14 years. But the company pulled out of a gala sponsorship in recent months, said Julia Forster, Spoleto director of development. Festival organizers are now waiting on a decision about a jazz series Wachovia had supported.

"We're going on as planned," Forster said. "But things will certainly be scaled back in every way possible for us this year."

Timothy Koch, a professor of finance at the University of South Carolina's Moore School of Business in Columbia, said smaller community banks stand to gain from the Wachovia sale as customers switch accounts to locally owned institutions.

"Any bank that fails like Wachovia did, it's bad for the business and it's bad for the industry. So it does often times create anxiety," said Koch, who is also a consultant for smaller banks. "But for a community bank, when larger banks combine ... they may benefit if they're sound and they stick to their business plans."

The Associated Press contributed to this report.