Charlotte, N.C., reflects on post-Wachovia fate

CHARLOTTE, N.C. Looking back on last fall's financial crisis, former Wachovia Corp. General Counsel Jane Sherburne said it's disappointing that executives scrambling to salvage the tottering Charlotte-based bank had to sell it to Wells Fargo to save it.

But considering the fate of other failed firms, she is convinced the bank could have suffered worse: a government dismantling or a complex sale to Citigroup.

"It's been hard for individuals, but for the company and for shareholders and even employees, we got a result that was vastly better than receivership and clearly much better than the agreement with Citi," Sherburne said.

One year after Wachovia's dramatic fall, San Francisco-based Wells Fargo & Co. has cut more than 500 jobs here, former Wachovia shareholders are still reeling from their losses, and uneasiness remains about the bank's plans. But there's also a growing feeling that Wachovia and the Charlotte region could have suffered an even worse fate.

As the crisis unfolded last year, Charlotte Regional Partnership CEO Ronnie Bryant worried that the city could lose 5,000 to 8,000 Wachovia jobs over time. Instead, a top Wells executive last month said the bank expects to grow from here.

"We have fared better than I thought we would," Bryant said.

Business owners and economists say things have begun to turn around. The city, long dependent on its two brash and conquering megabanks -- Wachovia and Bank of America -- won't emerge unchanged, but it will bounce back, they say.

"I think the financial-services industry is ultimately going to come back to health, so I think Charlotte will be OK," Richmond Federal Reserve Bank President Jeffrey Lacker said after a recent speech in Charlotte.

Wachovia's travails have had an impact in Virginia, where it remains the largest bank by deposits. The former Richmond-based Wachovia Securities is now Wells Fargo Advisors and is based in St. Louis, though the headquarters move was planned before the financial meltdown that precipitated the Wells Fargo purchase. The brokerage's Richmond-area employment, once about 2,600 at its peak in 2006, is now about 900.

To be sure, with Wells Fargo's Dec. 31 takeover of Wachovia, Charlotte has lost a key corporate headquarters, and how the city will ultimately fare in the merger remains to be seen. The combined company faces a challenging conversion of East Coast bank branches and the ongoing fallout from the recession.

To some analysts, the announcement last week that Wells Chairman Dick Kovacevich is stepping down at year's end was a sign of his confidence in the merger and the company's prospects.

But in a research note this month, Rochdale Securities analyst Dick Bove said some investors remain skeptical of the bank's ability to absorb loan losses, cut costs in the merger and retain Wachovia's deposits.

"Management is convinced that it has produced a consistent high return on its businesses benefiting shareholders," Rochdale Securities Bove wrote. "Yet the tremors in the volcano keep rising; not subsiding."

For much of 2008, Wachovia was rocked by mortgage losses stemming from its 2006 Golden West Financial purchase and the removal of CEO Ken Thompson. Then, in mid-September, came the financial meltdown inflamed by the demise of investment bank Lehman Brothers.

New CEO Bob Steel had said he wanted to work through the mortgage losses and keep the bank independent. But when financial markets unhinged, he began shopping the company.

After Seattle-based thrift Washington Mutual failed on Sept. 25 last year, Wachovia's stock plummeted and customers began pulling deposits. Over the weekend of Sept. 27-28, regulators worried that the bank wouldn't have the necessary financing to open on Monday and pushed for a deal with Wells Fargo or Citi.

By Sunday, Wells Fargo decided it couldn't do a deal in time without government help. For the first time, regulators exercised a "systemic risk" clause and weighed government-assisted bids by Citi and Wells. The Federal Deposit Insurance Corp. chose Citi.

On Monday, Sept. 29, Charlotte awoke to the sale of a bank that had long been an acquirer of other cities' banks. But as both sides worked to finalize the merger agreement, Wells trumped Citi's deal with a rival bid unveiled Oct. 3. Into the following week, Citi and Wells feuded, even considering a plan to carve up Wachovia. On Oct. 9, Citi relented and Wells prevailed.

Over that stretch, executives pulled all-nighters as they jumped from option to option. At one point, Wachovia proposed a plan that would have kept it independent with government aid, but regulators balked.

"It was an incredibly intense time when we were confronted with a lot of complex issues and demands for quick judgment calls," said Sherburne, the former general counsel.

During the drama, Charlotte businessman Mark Beck launched a Web site urging shareholders to reject the company's sale to Citi, then Wells. Both deals, he said, undervalued a company that was worth nearly $60 per share in early 2006.

In Citi's offer, Wachovia shareholders would have received about $1 per share. In the Wells transaction, they got one-fifth of a Wells share for each Wachovia share. At this past Friday's close of $28.19, that was equal to about $5.61 per share. Wells shares are down more than 4 percent this year but up significantly from a low in March.

Most of the thousands of shareholders Beck heard from last year were opposed to the sale. But he said some investors, especially bank employees, feared that the deal's rejection would incur much more dire consequences.

Like other shareholders, he laments the timing of the bank's sale, shortly before Congress approved the Troubled Asset Relief Program designed to strip banks of bad loans. Under this program, the government later injected capital directly into banks.

"If they could have hung on another week for the TARP money," Beck said, "they would still be independent."

Since last year, Wachovia's total employment in Charlotte has fallen to 19,500 from as high as 21,000, including attrition and earlier layoffs.

This month, East Coast banking head Laura Schulte, who is based in Charlotte, told the Charlotte Observer that she doesn't know of any more major layoffs in the works. Instead, she expects the bank to start adding jobs in Charlotte.

"We want to leave it better than we found it," Schulte said.

As the companies come together, Wells has put its name on brokerage and other operations, but Wachovia bank branches won't start changing signs on the East Coast until late next year. The bank has said the merger will take a total of about three years.