Wacovia
Wacovia is one of the largest financial companies in the USA, with its general headquarter located in Charlotte, North Carolina. In December 31, 2008 Wacovia was acquired by Wells Fargo and Company in order to avoid the failure due to the financial crisis that stroked many banks and financial institutions all over America.
The history of Wacovia begins in June 16, 1879, when William Lemly opened a new bank called Wacovia National Bank. Fourteen years later Wacovia Loan and Trust Company was founded in the attempt to diversify the financial services offered by the company. At the end of 19th century Wacovia became one of the largest banks located in the South part of the United States. This was possible mostly because R.J. Reynolds Tobacco Company carried all its financial transactions with Wacovia. Soon Wacovia started to extend to the neighbor states by purchasing small local banks and transforming them as local offices of the already well known brand. An interesting announcement for the financial market was made on April 16, 2001 when First Union Corporation let the world know that the company intends to merge with Wacovia under the Wacovia brand. This event took by surprise many financial analysts and was credited as the birth of a new financial empire. After this alliance Wacovia Corporation purchased a series of small financial institutions trying to become a national bank in USA. Among these new acquisitions were Prudential Securities, Metropolitan West Securities, SouthTrust, Westcorp, Golden West Financial/World Savings Bank, A.G. Edwards and others. Wacovia has growth a lot with the new purchases and in 2008 became the 4th largest financial institution in the USA.
When the financial crisis of 2007-2009 began Wacovia started to experience serious difficulties because the company was engaged in a big number of high risk loans such as adjustable rate mortgages. At the end of 2008 Wacovia reported $8.9 billion loss which was far more than what was anticipated and comparing to the total earnings of $2.3 billion. In the same year the CEO Ken Thompson resigned letting the top executive position in the company to Bob Steel. Steel tried to save Wacovia but without much success. In September 2008 a series of depositors withdrew their funds in order to get the account balances below the limit of $100,000. This limit was a maximum required to get insurance from the Federal Deposit Insurance Corporation (FDIC). With this event Wacovia lost more than $5 billion which was about 1% of the total deposits amount of the bank. Noticing the huge outflow of money happening at Wacovia the Office of the Comptroller of the Currency which is the institution that regulates banks in the USA demanded Wacovia to find new investors or a business partner that would help the company to avoid bankruptcy.
At the end of September 2008 Wacovia had already started the negotiations with two potential buyers; Citigroup and Wells Fargo. But they did not advanced pretty well due to the concerns about the Wachovia's commercial loans. Seeing that the deal is not going anywhere FDIC decided to sell the company’s actives to Citigroup motivating that Wacovia is a “to big to fail company”. Citigroup became the liquidity supplier for Wacovia but the selling procedure was far from being closed.
On October 3, 2008 the unexpected happened; Wacovia and Wells Fargo announced that they plan to merge together without the involvement of FDIC. Although Citigroup tried several legal ways to stop this to happen on December 31, 2008 the deal was closed and Wacovia became part of Wells Fargo Corporation.