Posted on Thu, Oct. 02, 2008
last updated: November 24, 2008 09:45:37 AM
The bank that some are branding as Wachovia's rescuer is on shaky ground itself.
In the past year, New York-based Citigroup has racked up more than $40 billion in write-downs and other losses, fallout from the subprime mortgage meltdown. It is already in the midst of cutting thousands of jobs and selling off some units, and it is about to announce its fourth straight quarterly loss in the billions of dollars.
To pay for the Wachovia deal, it will have to raise $10 billion on the market and slash its payout to shareholders for the second time in a year.
Citigroup leaders, in explaining their decision to buy Wachovia, cited Wachovia's strong consumer banking presence. That's an area in which Citi has long been eager to expand.
But Joe Gordon, managing partner of Gordon Asset Management in the Raleigh area, says Citi's purchase wasn't based on just a desire for bragging rights. "Citi," Gordon said, "needs Wachovia to survive."
Buying Wachovia will nearly triple Citigroup's U.S. deposits, to more than $600 billion. Like other banks worried by the tumultuous financial markets, including Morgan Stanley and Goldman Sachs, Citigroup is eager to build deposits because they're a low-cost and stable source of funding.
The man who is about to lead the bulk of the old Wachovia, Vikram Pandit, became chief executive of Citigroup in late 2007. That was just months after he started at the bank, which he came to when it bought the hedge fund where he worked.
Pandit, like Wachovia CEO Bob Steel, succeeded a disgraced chief executive and was brought in to clean up a discredited company. Pandit's predecessor, Charles Prince, was dismissed last November when it became clear that Citigroup would lose billions on subprime mortgages.
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