MELISSA BLOCK, host:
From NPR News, this is All Things Considered. I'm Melissa Block. Stunning events today on Capitol Hill and Wall Street. The Dow tanked more than 700 points; that came as the financial bailout package went down in defeat in the House of Representatives. We're reporting various angles of this story throughout our program. Even before Wall Street and Congress came to work today, they had a stark reminder of the severity of the financial crisis. The federal government arranged for the sale of another major bank, Wachovia. Citigroup will pay over $2 billion in stock for Wachovia's banking operations. It will also assume $53 billion in debt. The government was concerned that Wachovia held too many bad mortgages to survive. NPR's Yuki Noguchi explains how a once-cautious bank ended up in the bargain bin.
YUKI NOGUCHI: Following a weekend of negotiations, Wachovia became the latest national bank to sell itself in a fire sale. It was on the brink of failure and now, Citigroup inherits the consumer banking operations, with all its history and all its debts. Citigroup sat out on many of the bank mergers of recent weeks, but CEO Vikram Pandit says he jumped at this chance.
Dr. VIKRAM PANDIT (CEO, Citigroup): We at Citi had the opportunity to look at a number of deals. We passed on these because they were not compelling. This one is compelling.
NOGUCHI: That situation is a far cry from Wachovia's beginnings as Union National. Its founder, H.M. Victor, started it in a hotel lobby and built a reputation as a cautious lender, loaning only to those with the most reliable credit. When he lent money to a client for a car, for example, he held onto the keys and the title until it was paid off. Such caution and frugality kept it open through the Depression in the 1930s. Byron MacLeod is a banking analyst with independent research firm Gradient Analytics.
Mr. BYRON MACLEOD (Banking Analyst, Gradient Analytics): I mean, really, the company does have or had a reputation for conservative underwriting, but yeah, I mean, as I said, I think they've really sort of lost their way.
NOGUCHI: Wachovia's business and cultured changed as it acquired a hundred banks. Among them, Golden West Financial, which it bought two years ago. That company issued many bad home loans that weighed Wachovia down. The FDIC and Citigroup said they would work to ensure Wachovia customers would not feel any disruptions in service. The FDIC ensures deposits of up to $100,000. But in downtown Charlotte today, Wachovia employees braced for possible layoffs, despite assurances Citigroup would maintain a large presence there. Brenda Bansmer(ph) has worked in Wachovia's retirement-services division for 11 years. She says she's resigned to the possibility of losing her job, but that many in the office are not so sanguine.
Ms. BRENDA BANSMER (Employee, Wachovia): I think they're saying: I need to update my resume, and where are we going to be a week from now, and am I even going to have a job?
NOGUCHI: Greg Daily(ph) works for Charlotte's other hometown bank, Bank of America. He says Wachovia's demise adds to his anxiety.
Mr. GREG DAILY (Employee, Bank of America): It's going to be very rough. I can't foresee what's going to happen, but I'm scared to think what's going to be happen, to be honest with you.
NOGUCHI: Wall Street isn't assured this buyout solves the problems, either. Analysts say Citigroup has problems with its balance sheet. The bank has been trying to reduce its own debts and cover its own bad mortgage-related loans. And although the FDIC is insuring Citigroup's losses from this deal, it's not clear what Wachovia's assets are worth. Citigroup already identified $312 billion in questionable loans held by Wachovia. Again, banking analyst Byron MacLeod.
Mr. MACLEOD: To take that risk at a time where Citigroup's position is tenuous on its own right is certainly a risky move by Citigroup's board of directors.
NOGUCHI: But Citigroup officials say this is a manageable risk, and the CEO says that huge rewards only come by taking huge risks. Yuki Noguchi, NPR News. Transcript provided by NPR, Copyright NPR.
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