Wachovia's fall jolts Charlotte

The queen city loses a jewel from its financial crown and looks toward an humbling transition

CHARLOTTE -- It was only days ago that Wachovia Corp. appeared headed toward a deal with Morgan Stanley, a merger that would have moved a piece of staggering old Wall Street south and further established the Queen City as a new hub of the American financial system.

Instead, only Wall Street's pain came to Charlotte's Tryon Street.

Crushed by its disastrous 2006 acquisition of mortgage lender Golden West Financial Corp., Wachovia succumbed Monday to the global financial crisis, agreeing to sell its banking operations to New York's Citigroup Inc. for a mere $2.1 billion in a deal arranged by federal regulators.

Yes, Bank of America still stands on Tryon Street and is now one of the "Big Three" U.S. banks. But the Wachovia collapse leaves Charlotte bracing for the worst -- the loss of thousands of high-paying bank jobs that helped turn the state's largest city into a booming center of the New South.

"We've been on the winning end of a countless number of bank transactions over the last 25 years," said Tony Plath, a finance professor at the University of North Carolina at Charlotte. "And that has translated into new jobs and homes and construction. Now, we're on the losing end. This is a big loss for the city."

For years, it was Bank of America and Wachovia playing the aggressor, making deal after deal -- including the 2001 merger of First Union and Wachovia that led to the modern-day bank -- as they worked to create a second Wall Street on Tryon. Wachovia has 120,000 employees nationwide, including 20,000 in Charlotte.

The banks' imprint dominates the city.

Wachovia sponsors the city's annual PGA tournament, among the most popular on tour, while Bank of America's name is on the football stadium. Both fill towering downtown office buildings -- Wachovia is building a 48-story headquarters and adjoining city arts campus. The bankers and traders who work for both helped created the demand for the high-rise condos nearby.

"The economic and political dynamics of the Charlotte business community will change, because in the past (Bank of America) and Wachovia tried to one-up each other," said Michael Walden, an economics professor at N.C. State University. "That's indicated by the buildings they constructed. Both were very active in local civic affairs."

In the lobbies of those downtown's towers, there was a sense of disbelief Monday as Wachovia employees huddled, whispered and shared the latest gossip. Workers outside smoked cigarettes and talked on cell phones, trying to find out whether there would be layoffs.

"We just don't know anything at this point," said Jennie Meyers, 34, a Wachovia teller for the past five years. "They haven't told us much. We're trying to find out everything we can from friends and co-workers. Everyone is afraid."

Wachovia trips, falls

While Bank of America continued to make money during the ongoing financial downturn, Wachovia stumbled badly. The bank lost billions, announced plans to cut thousands of jobs, slashed its dividend and fired chief executive Ken Thompson. Its stock, which traded above $50 a year ago, recently dropped below $8 a share. On Monday, it dropped 82 percent to close at $1.84.

Rumors about a possible takeover were rampant. But following the collapse of Lehman Brothers Holdings, and Bank of America's acquisition of troubled investment bank Merrill Lynch, the rumors shifted to a possible merger with New York investment bank Morgan Stanley. Such a deal would have cemented Tryon Street as a true rival to Wall Street.

"We thought we had gotten through the crisis -- and we came out ahead," said Brian Daniels, 37, a mortgage broker and former Wachovia employee. "Everything looked bright for the city."

What's left of Wachovia will remain headquartered in Charlotte, and Citigroup plans to base its retail bank in the city.

During a conference call with investors, Citigroup CEO Vikram Pandit said he is working with Wachovia CEO Robert Steel in setting up a transition team. "We will make sure that we execute on this with a great deal of precision and a great deal of speed," he said.

Mayor Pat McCrory said he spoke to Pandit, who stressed the acquisition will bring stability not only to the banking institutions and financial markets, but also to Charlotte.

"There's no doubt there's a lot of apprehension in the city and especially with a lot of the employees. But I think we'll come through this in the long term on a high note," said McCrory, the Republican candidate for governor.

McCrory didn't talk with Pandit about possible layoffs, but said he's been in touch with state leaders to "develop a strategy to make sure we all land on our feet."

"We want to do everything we can to keep as many jobs as possible," he said.

That will be a challenge. The deal is hardly a neat one for Citigroup, which said Monday it will halve its dividend to 16 cents, sell $10 billion in common stock and assume $53 billion on Wachovia's debt.

Citigroup said it expects to realize "more than $3 billion of annualized expense synergies through the consolidation of overlapping functions."

"Citi is going to have to be draconian with this in order to make this work from their standpoint to make money," UNC-Charlotte's Plath said.