Wachovia

Wachovia

File:Wachovia logo.svg Logo used from 2001 until acquisition by Wells Fargo in 2008
Company type	Public
Industry	Financial services
Founded	June 16, 1879 (1879-06-16) in Winston-Salem, North Carolina, U.S.
Founder	James Alexander Gray, William Lemly
Defunct	December 31, 2008 (2008-12-31)
Fate	Acquired by Wells Fargo
Headquarters	Charlotte , United States
Area served	United States (21 states plus Washington, D.C.), worldwide offices
Products	Banking, asset management, wealth management, corporate and investment banking
Parent	Wells Fargo (from 2008)

Wachovia was a multifaceted financial services firm based in Charlotte, North Carolina. Prior to its 2008 takeover by Wells Fargo and Company, it ranked as the fourth-largest bank holding company across the United States by total assets. Wachovia provided an extensive array of banking services, including asset management, wealth management, as well as corporate and investment banking solutions. Its network of financial centers covered 21 states plus Washington, D.C., stretching from Connecticut down to Florida and extending westward to California, complemented by more than 40 offices worldwide.

The Wells Fargo acquisition was completed on December 31, 2008, after a government-mandated sale intended to avert Wachovia’s collapse. The Wachovia brand was completely integrated into Wells Fargo by October 15, 2011.

Wachovia’s capital markets and investment banking for corporate and institutional clients were conducted under the Wachovia Securities name. Its asset management division oversaw the Evergreen Investments family of funds until their consolidation with Wells Fargo Advantage Funds in 2010. The private equity unit operated as Wachovia Capital Partners, which subsequently separated to become Pamlico Capital. The asset-based lending operations were branded as Wachovia Capital Finance.

The company’s name was inspired by the historic Wachovia Tract.

First Union

First Union began as Union National Bank on June 2, 1908, established by H.M. Victor in Charlotte. In 1958, it merged with First National Bank and Trust Company of Asheville, resulting in First Union National Bank of North Carolina. The corporation itself was formed in 1967.

By the 1990s, First Union had emerged as a dominant Southern regional bank, rivaling NCNB (which evolved into NationsBank and later Bank of America). In 1995, it extended its reach into the Northeast through the acquisition of First Fidelity Bancorporation based in Newark, New Jersey. This expansion continued in 1998 when it acquired CoreStates Financial Corporation from Philadelphia, a bank with historical origins tracing back to America’s first chartered bank in 1781.

Wachovia

Wachovia Corporation was established on June 16, 1879, in Winston-Salem, North Carolina, originally named Wachovia National Bank and co-founded by James Alexander Gray and William Lemly. In 1911, it merged with Wachovia Loan and Trust Company, which was then the largest trust company located between Baltimore and New Orleans. The bank experienced significant growth through its close relationships with prominent local businesses such as R.J. Reynolds Tobacco Company.

By the end of 1964, Wachovia became the first bank in the Southeastern United States to surpass $1 billion in assets. Hugh Durden joined the firm in 1972 and later ascended to the role of President.

In December 1986, Wachovia acquired First Atlanta—the oldest national bank headquartered in Atlanta—resulting in dual headquarters situated in Winston-Salem and Atlanta. The bank expanded its footprint into South Carolina by purchasing South Carolina National Corporation (originally founded as Bank of Charleston in 1834) in 1991. During the late 1990s, Wachovia entered the Virginia market through acquisitions of Jefferson National Bank and Central Fidelity Bank (both in 1998), and expanded into Florida by acquiring 1st United Bancorp and American Bankshares Inc (1997). Its last acquisition prior to merging was Republic Security Bank in 2000.

Merger of First Union and Wachovia

On April 16, 2001, First Union revealed plans to acquire Wachovia through a $13.4 billion stock transaction, exchanging two shares of First Union for each share of Wachovia. Following the merger, Wachovia’s chairman, L.M. "Bud" Baker Jr., assumed the role of chairman for the combined entity, while Ken Thompson, First Union’s chairman, took on the positions of president and CEO. Despite First Union being the acquirer and maintaining its corporate structure and stock lineage, the merged institution adopted the Wachovia name and ticker symbol, establishing its headquarters in Charlotte.

The announcement caught financial experts off guard, as many had anticipated that Atlanta-based SunTrust would acquire Wachovia after its financial difficulties in 2000. Doubts were raised about First Union’s capacity to successfully integrate another large organization given its earlier integration struggles with CoreStates. The merger also had significant implications for Winston-Salem—Wachovia’s base—resulting in job reductions and diminished corporate influence there; consequently, First Union set up wealth management and regional Carolinas headquarters in that city.

On May 14, 2001, SunTrust initiated a hostile takeover bid, proposing a superior cash offer and asserting it would ensure a more seamless integration. However, Wachovia’s board declined SunTrust’s proposal and endorsed First Union’s offer instead. This rejection sparked an intense summer-long bidding contest featuring escalating bids, media campaigns, shareholder correspondence, and legal disputes. Ultimately, on August 3, 2001, shareholders ratified the agreement with First Union, terminating SunTrust’s pursuit.

A notable challenge involved the credit card operations of both banks: Wachovia had agreed to sell its $8 billion portfolio to Bank One in April 2001, while First Union had previously sold its portfolio to MBNA in 2000. The newly formed company negotiated repurchasing Wachovia's portfolio from Bank One for $350 million before reselling it to MBNA.

The merger finalized on September 4, 2001. To prevent previous integration pitfalls, the company implemented a phased approach for system conversions—beginning with branches overlapping in the Southeast region and subsequently transitioning to those in the Northeast—completing this process by August 18, 2003. Industry analysts praised this cautious strategy for minimizing customer loss. After the merger, Wachovia consistently achieved top rankings in customer satisfaction among leading banks according to the American Customer Satisfaction Index.

Following the consolidation, prominent office towers in Charlotte and Miami were rebranded under the Wachovia banner. Additionally, several sports venues in Philadelphia and Wilkes-Barre were renamed to reflect the Wachovia brand.

Merger and acquisition history

A visual representation depicting the company’s significant mergers, acquisitions, and predecessor entities leading up to the 2001 union between Wachovia and First Union:

}}

Acquisitions

From 2001 through 2006, Wachovia expanded its national footprint and diversified its services by acquiring multiple financial firms.

Merchandise

Concurrent with the First Union merger, Wachovia redesigned its logo into a square featuring wave motifs—green symbolizing First Union and blue representing Wachovia—and introduced branded items such as t-shirts, keychains, cups, and mugs to strengthen corporate branding from 2001 until its eventual acquisition by Wells Fargo.

Prudential Securities

On July 1, 2003, Wachovia Securities combined forces with Prudential Financial's Prudential Securities Division, resulting in the creation of Wachovia Securities LLC. Wachovia held a majority ownership of 62%, while Prudential maintained a 38% interest. The merged entity managed client assets totaling $532.1 billion, positioning it as the third-largest full-service retail brokerage in the United States by asset volume.

Metropolitan West Securities

In October 2003, Wachovia expanded its portfolio by acquiring Metropolitan West Securities, a subsidiary of Metropolitan West Financial. This acquisition significantly strengthened Wachovia Global Securities Lending, adding over $50 billion worth of securities on loan to its holdings.

SouthTrust

Wachovia finalized the $14.3 billion purchase of Birmingham, Alabama-based SouthTrust Corporation on November 1, 2004. This merger established the largest banking institution in the southeastern United States, ranking fourth nationally by total assets and second by number of branches. The integration process was completed by the close of 2005.

Failed MBNA purchase

During June 2005, Wachovia entered negotiations to acquire credit card issuer MBNA but ultimately withdrew due to disagreements over pricing. Soon after, MBNA agreed to be acquired by Wachovia’s competitor, Bank of America. As part of a prior arrangement, Wachovia received $100 million from MBNA for selling to a rival. By late 2005, Wachovia ended its partnership with MBNA and proceeded to develop its own Visa credit card division.

Westcorp

In September 2005, Wachovia announced intentions to acquire Westcorp, the parent company of Western Financial Bank and WFS Financial Inc. The deal received shareholder approval in January 2006 and was finalized on March 1, 2006. This acquisition bolstered Wachovia’s auto financing segment, elevating it to the ninth-largest auto lender nationwide, and introduced retail and commercial banking operations in Southern California. By February 2007, nineteen Western Financial Bank branches had been rebranded as Wachovia locations, setting the stage for further expansion in California through the subsequent acquisition of World Savings Bank.

Golden West Financial/World Savings Bank

On May 7, 2006, Wachovia agreed to purchase Golden West Financial for approximately $25.5 billion. This transaction added a network of 285 branches across ten states and enhanced Wachovia’s presence in California with Golden West’s $32 billion in deposits spread over 123 branches.

Operating under the name World Savings Bank, Golden West was the second-largest savings and loan institution in the U.S. Founded in 1963 by Herbert and Marion Sandler, it specialized in "Pick-A-Pay" adjustable-rate mortgages that provided flexible payment options. In 2006, Fortune recognized Golden West as the "Most Admired Company" in mortgage services. At acquisition time, Golden West held assets exceeding $125 billion and employed approximately 11,600 people; the Sandlers continued serving on Wachovia’s board.

The Sandlers chose to sell at peak market conditions to prioritize philanthropic efforts. However, some executives at Wachovia later acknowledged that limited due diligence was conducted on World Savings’ loan portfolio due to expedited deal approval. The creditworthiness of Pick-A-Pay borrowers was below industry norms and heavily concentrated in markets like California, Florida, and Arizona—regions experiencing significant housing price declines. Following the merger, Wachovia Mortgage offered low introductory interest rates near 1%, which attracted higher-risk borrowers and drew regulatory attention.

Wachovia CEO G. Kennedy "Ken" Thompson described Golden West as a "crown jewel," but investor response was unfavorable. Analysts criticized acquiring such an asset at the housing market’s peak. Losses related to mortgage exposures from this purchase were a major factor in Wachovia’s financial troubles that eventually led to its acquisition by Wells Fargo.

A. G. Edwards

On May 31, 2007, Wachovia revealed its plan to acquire A. G. Edwards for $6.8 billion, positioning itself as the second-largest retail brokerage in the United States. The acquisition was finalized on October 1, 2007, and by March 2008, the A.G. Edwards brand was retired and fully integrated under the Wachovia Securities name.

Historical data (2000–2008)

By the conclusion of 2008, Wachovia, excluding its subsidiaries, was ranked as the fourth largest bank in the U.S. based on asset size.

2008 financial crisis

Wachovia suffered substantial losses during the subprime mortgage crisis due to its exposure to high-risk loans, including adjustable-rate mortgages acquired through the 2006 purchase of Golden West Financial.

Following financial instability, CEO G. Kennedy Thompson was replaced on June 2, 2008, by Chairman Lanty Smith in an interim capacity. In the second quarter of 2008, Wachovia reported a loss of $8.9 billion and announced workforce reductions totaling 10,000 positions.

To navigate these difficulties, Wachovia appointed Treasury Undersecretary Robert K. Steel as CEO on July 9, 2008, capitalizing on his governmental expertise to steer the bank through its crisis.

Government intervention

Upon assuming leadership, Steel aimed to maintain Wachovia's independence. Nevertheless, on September 26, following the regulatory seizure of Washington Mutual, a bank run ensued at Wachovia resulting in a deposit withdrawal of approximately $5 billion—about 1% of total deposits. This significant loss prompted scrutiny from the Office of the Comptroller of the Currency, which urged Wachovia to explore a sale over that weekend. Given Wachovia’s extensive East Coast branch network, its collapse would have placed severe pressure on the FDIC’s insurance fund.

During that weekend, Wachovia engaged in FDIC-facilitated negotiations with both Citigroup and Wells Fargo. Initially, Wells Fargo was favored to acquire Wachovia’s banking operations but subsequently withdrew due to concerns regarding Wachovia’s commercial loan portfolio. With no agreement reached by September 28, regulators feared that Wachovia lacked adequate short-term funding amid a credit crunch that severely limited interbank lending. The liquidity gap posed a risk of failure significantly larger than that experienced by WaMu.

FDIC Chairwoman Sheila Bair initially intended to handle Wachovia similarly to WaMu—by seizing and placing its banking assets into FDIC receivership for sale—but encountered resistance from regulators led by Tim Geithner, President of the Federal Reserve Bank of New York. After negotiations, the FDIC classified Wachovia as "systemically important" to the financial system—a designation not applied since a 1991 statute enabling expedited resolution of large bank failures.

That evening, in an FDIC-mediated agreement, Citigroup consented to acquire Wachovia’s retail banking division through an "open bank" transaction backed by FDIC guarantees and approved by both the Federal Reserve and Treasury Department. The FDIC noted that Wachovia neither failed nor entered receivership. It agreed to cover Citigroup’s losses exceeding $42 billion on a $312 billion loan portfolio in exchange for $12 billion in preferred stock and warrants issued by Citigroup.

The deal valued Wachovia shares at roughly one dollar each, amounting to approximately $2.16 billion total, with Citigroup assuming responsibility for both senior and subordinated debt. Citigroup planned a $10 billion equity offering to recapitalize the acquired assets. The transaction was anticipated to close before the end of 2008.

Wachovia planned to remain publicly traded and retain its retail brokerage division, Wachovia Securities, along with Evergreen mutual funds. At that time, Wachovia Securities managed assets exceeding $1 trillion with a network of 14,600 financial advisors—ranking third nationally behind Merrill Lynch and Citigroup’s Smith Barney.

Some shareholders expressed dissatisfaction with the low valuation and considered opposing the transaction; however, institutional investors held 73% of shares, making opposition unlikely to succeed. Analysts noted that rejecting the agreement risked regulatory seizure and total shareholder loss since federal authorities orchestrated the deal.

Acquisition by Wells Fargo

On October 3, 2008, Wells Fargo revealed plans to acquire Wachovia through an all-stock transaction valued at $15.1 billion, intending to complete the merger without relying on government assistance. Wachovia preferred this offer over Citigroup's proposal because it presented greater value and allowed the continuation of its existing business divisions. From a strategic perspective, Wells Fargo's strong foothold in the Western and Midwestern United States complemented Wachovia's dominance on the East Coast, resulting in minimal operational overlap. Both companies' boards gave their unanimous approval for the merger on October 2.

Citigroup challenged the agreement, arguing that an exclusivity contract with Wachovia prevented negotiations until October 6. It obtained a preliminary injunction from a New York court to halt Wells Fargo’s acquisition; however, this ruling was later reversed by an appellate court due to jurisdictional issues. On October 9, Citigroup withdrew its bid but pursued claims totaling $60 billion against both Wachovia and Wells Fargo for violating the exclusivity agreement. In November 2010, Wells Fargo agreed to a $100 million settlement.

The regulatory environment played a significant role in the transaction; FDIC Chair Sheila Bair endorsed Wells Fargo’s offer as it avoided federal intervention. The Federal Reserve unanimously authorized the merger on October 12, 2008.

Following the merger, the combined institution retained the Wells Fargo name and maintained its headquarters in San Francisco, while Charlotte continued to serve as the primary East Coast operations center. This consolidation resulted in the largest branch network across the United States and incorporated three former Wachovia board members into Wells Fargo’s board of directors.

Wachovia reported a net loss of $23.9 billion in the third quarter of 2008. Analysts suggested that IRS tax incentives related to acquiring distressed banks—potentially amounting to billions—may have motivated Wells Fargo’s purchase. The acquisition was finalized on December 31, 2008, with Wachovia’s branding updated to include “A Wells Fargo Company.”

Chief executive officers

• G. Kennedy Thompson (2001–2008)
• Robert K. Steel (2008)

Identity theft negligence

In May 2007, an article in the New York Times exposed Wachovia’s failure to adequately vet companies connected to identity theft, which enabled unauthorized withdrawals through unsigned checks totaling $142 million. Despite numerous alerts from regulatory authorities, Wachovia continued to earn fees from these transactions. In April 2008, the bank agreed to pay up to $144 million to resolve the investigation without admitting fault. This penalty ranked among the largest levied by the Office of the Comptroller of the Currency, highlighting serious deficiencies in Wachovia’s compliance and due diligence procedures.

Latin drug cartel money laundering

In April 2008, federal prosecutors initiated an investigation into Wachovia and other financial institutions for enabling money laundering activities by Mexican and Colombian drug cartels via casas de cambio, which also functioned as a key strategy for entering Hispanic banking markets. By March 2010, Wachovia acknowledged insufficient anti-money laundering controls over $378.4 billion in transactions processed between 2004 and 2007—the most significant breach of the Bank Secrecy Act at that time. This failure allowed drug cartels to launder at least $110 million through its systems. As part of a deferred prosecution agreement, Wachovia forfeited $110 million and paid an additional $50 million fine.

Subsequent investigations revealed that Wachovia disregarded multiple warnings and suspicious activity reports, including those submitted by its London-based anti-money laundering director, exposing systemic compliance breakdowns that severely harmed the bank’s reputation and regulatory compliance standing.

See also

• List of banks that were acquired or failed during the Great Recession

External links

• Wachovia Corporation Overview on Yahoo! Finance