Mayor More Confident About Citigroup's Commitment To Charlotte

Charlotte mayor Pat McCrory told Channel 9 Eyewitness News Tuesday evening that he's more confident about Citigroup's buyout of Wachovia. McCrory had his first face-to face meeting with Citigroup executives Tuesday morning. McCrory and Bob Morgan, president of the city's chamber of commerce, met at the chamber with Don Callahan, Citigroup's chief administrative officer and Paul McKinnon, the head of talent management.

Mayor McCrory said Tuesday night he's confident that Citigroup will be committed to Charlotte. "We talked about jobs and keeping as many jobs as possible here," McCrory said.

Wachovia's retail and investment banking will be sold to Citigroup, Inc. which is based out of New York. Wachovia Securities will remain and its headquarters will be in Charlotte.

While it is unclear how many jobs are on the line in Charlotte, Mayor Mccrory said he's committed to making sure Charlotte and the Carolinas are taken care of. "I think we're gonna have some short term pain but the whole nation is going through some short-term pain," he said. "But I'm bullish on Charlotte, I'm bullish on the Carolinas and I'm bullish on recovering from this financial meltdown."

McCrory also said he was impressed the executives knew a lot about the Queen City including the quality of life and the role Wachovia has played in building Charlotte into a world class city.

"I saw a real strong commitment to the Wachovia brand as far as the employees and the company and respect for the company in addition to respect for Charlotte," McCrory recalled, "and it was a very positive message."

More than 20,000 Wachovia jobs in Charlotte are on the line, but experts say far more jobs will be touched.

“We know there's going to be a ripple effect, and we know its going to be significant,” said Tony Plath, a finance expert at the University of North Carolina at Charlotte.

Plath said there are hundreds of people who rely on Wachovia for their own business.

“You've got the lawyers, the accountants, (information technology), management consultants, marketing people,” he said. “It’s hard to get a gauge on how many people. We've never lost a headquarters before, so we don’t know how many people will lose jobs in this particular transaction.”

More lost jobs will likely mean another hit to the housing market. In Charlotte, there are already plenty of homes that aren’t selling.

“We are helping sellers adapt to the current marketplace. For the first time, we have an oversupply,” said Pat Riley, president of Allen Tate Realtors.

He said people who could be buying, aren't, and he expects that hesitation to continue into next year.

“We have to get through the election cycle. People are distracted and people are concerned, and rightly so,” he said.

Plath is also looking ahead to next spring, which is when he said he expects to see the biggest changes with local businesses that work with Wachovia.

“We know its coming, but we don’t know how large it’s going to be,” he said.

Plath said Citigroup will likely bring in its preferred vendors and suppliers that they do business with in May or June, decreasing the number of transactions with Charlotte businesses.

Citigroup officials in New York said because the deal won't be finalized until the end of the year, it would be premature to comment on any changes that will be made.

Finance expects expect it to be several months before any major changes take place.

Citigroup Expresses Commitment To Wachovia Deal

Citigroup Inc. insisted Tuesday that it remains committed to its acquisition of Wachovia Corp., as the failure of the government's financial rescue plan cast doubt on the bank's willingness to close the deal.

On Monday, Citigroup agreed to buy the banking operations of the Charlotte, N.C.-based bank for $2.16 billion in a deal orchestrated by the federal government.

In addition to assuming $53 billion worth of debt, Citigroup agreed to absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio. The Federal Deposit Insurance Corp. agreed to cover any remaining losses in exchange for $12 billion in Citigroup preferred stock and warrants.

But the failure of the government's proposed $700 billion bailout for financial institutions Monday afternoon cast doubt on whether Citigroup would be able to rid itself of some of Wachovia's bad debt.

While the proposal would have prevented most banks from profiting on the sale of troubled assets to the government, an exception would have been made for assets acquired in a merger or buyout.

That would have allowed Citigroup to sell Wachovia's distressed mortgage-related assets to the government for a profit.

Citigroup said in a statement Tuesday that it remains "committed to the orderly consummation of the transaction." In a separate statement, Wachovia noted that Citigroup's use of government assistance in connection with the deal is not dependent on the government's financial rescue package.

"In isolation, we like the deal," said Fox-Pitt Kelton analyst David Trone, but with the failure of the bailout plan, "we are concerned about the macro consequences to Citi and its peers at a time when the global financial system is suffering from a severe decline in confidence."

The deal, which has been approved by the boards of both companies, is still subject to approval by Wachovia's shareholders and regulators, and must be completed by Dec. 31, according to Citigroup.

The acquisition greatly expands Citigroup's retail franchise -- giving it a total of more than 4,300 U.S. branches and $600 billion in deposits -- and secures its place among the top three banks in the country, alongside Bank of America Corp. and JPMorgan Chase & Co.

But the deal comes at a cost: Citigroup slashed its quarterly dividend in half to 16 cents and announced plans to sell $10 billion in common stock to shore up its capital position.

Fitch Ratings and Standard & Poor's Ratings Services have subsequently placed the investment-grade ratings on the bank on watch for possible downgrade, noting continued pressures on its own performance due to its loan portfolio.

Analysts generally view the deal as a strategic win for the New York-based bank, but are concerned about integration risks and the volatile market environment.

"We feel that Citigroup's acquisition of Wachovia is an opportunistic move that improves its positioning in U.S. banking while reducing its longer-term funding risk, but comes with significant integration risks at a time that Citigroup has its own issues to contend with," wrote Deutsche Bank analyst Mike Mayo in a note to investors Tuesday. Mayo maintained a "Hold" rating on the shares.

Shares jumped $2.95, or 16.6 percent, to $20.70 in afternoon trading. Shares, which are down nearly 40 percent this year, fell about 12 percent on Monday after the House's devastating defeat of the bailout proposal sparked one of the biggest market selloffs in years.