Real Reason Citi and Wells Fargo Sniffing Around Wachovia

The fight between Citigroup and Wells Fargo over that pig of a bank Wachovia still amazes me. I mean, WTF could these two want with a super-regional bank that is at best, on life support. It has gotten so bad that everyone is now suing each other for the right to get at this mess of a financial institution.

What’s it all for?

Well, Wachovia somehow manages about $800 billion in deposits through 3300 branches up and down the east coast. Needless to say, Wells Fargo has been chomping at the bit to get at some that Northeast money to help offset the bad loans it has on its books from California and the rest of the west coast. For Citigroup, it’s a quick way to add to an already growing stable of retail banking locations on the cheap while sorting out its own problems.

What’s it all mean?

Personally, I would like to see this asset go to Wells Fargo. For one, there is no overlap with current branches. Secondly, I think Wells Fargo wants to make this a long term play while another regional bank in the northeast can’t hurt when it comes to consumer offerings, and I think Wells Fargo is better at retail banking than Citigroup.

Why all the attention?

You may have asked yourself why is this dog called Wachovia fetching so much attention. Here’s why. While Howard Atkins, CFO for Wells Fargo said Wachovia’s loan losses would hit a pre-tax amount of about $74 billion, and would be written off shortly after the transaction closes, I see it a different way. That $74 billion in bad loans never makes it onto either Citigroup or Wells Fargo’s balance sheet. I am willing to bet that as a condition of this buyout no matter who wins the court battle and a condition that will never make its way onto paper mind you, is that Wachovia will have to dispose of its non-performing loans to you and me through the bailout bill just passed.

The new financial paradigm

That’s right; the new smart money is going to capitalize on our generosity. Over the next 18 months there is going to be a deluge of banking mergers large and small, and once the teams of accountants all stinking from the same aftershave leave the building, the conquering bank will be off to Washington to dump the sewage (read: bad loans) off at the door of the Treasury department, leaving a sparkling new balance to borrow against. Think I am wrong? How else is Wall Street going to repair itself if not with another zero risk proposition? Surely they are too smart to take on any risk right? They leave that to the sheep. Well, the one’s they didn’t just lead off to the slaughter.