Wachovia Tanks

What were their exec's doing? 

Should Wachovia's exec's have used shareholder assets to engage in narrow philanthropy?

Should shareholders sue management?

Wachovia has been Charlotte's special needs banking child since the old days of First Union. Uptown folks like to talk about both big banks as if they were equals. Hardly.

In Charlotte there were a lot of banks but the one that knew how to engage in banking aggressively and effectively was Bank of America (formerly NationsBank, NCNB and North Carolina National Bank). While Bank of America was cutting a deal to get the US Government bail them out of all of their loan losses on the Interfirst Texas acquisition (and also letting them claim a tax deduction on losses they didn't really pay for to boot), First Union/Wachovia was losing money in one deal after the other. The money store, Sub-prime lending, negative interest mortgages. What a list.

Wachovia has had a checkered recent financial history making bad financial deals left and right but always managing to stay afloat usually by firing the CEO and telling Wall Street and the public that 'things had changed'. Until now.

I am sure there will be much discussion about why it happened and who was at fault. In Charlotte, attention has turned to try and convince "Citi" to stay in Charlotte. Observer reporters write breathlessly about the possibilities as though they were real. They won't, but for now they will say that Wachovia's 'retail' business (it bank branches headquarters) will be in Charlotte. That will last about a year or less. Most  high paying jobs will go elsewhere. That is a loss that could have been avoided.

So what have Wachovia's exec's been doing all these years to prevent their demise? Did they focus like a laser beam on the fundamentals of their business (banking) or follow best banking practices (if they exist today)? Nope. 

To begin with, they were deciding to build another edifice to themselves in the form of a fancy skyscraper in downtown Charlotte. A monument to the 'me' generation now running the bank. 

In addition, Wachovia also spent a lot of time and shareholder money pledging to build 'arts' facilities in Charlotte. The deal, negotiated with the City and County provides that Wachovia will construct these non-profit arts facilities initially with shareholder money, incur the debt on Wachovia's books and then recoup the future mortgage payment from the City and County who agreed to give back 80 to 90% of the property taxes on the new skyscraper. It was structured this way to avoid having to ask taxpayers about the debt.

If you think about it, Wachovia was basically operating as a big non-profit at the expense of their shareholders. They did what the Charlotte politicians and the local power brokers wanted but not what their shareholders wanted (an ever increasing stock price). It was a cozy deal for everyone except for Wachovia's employees and their shareholders.

Now that Wachovia is ka-put and the stock worthless perhaps those that ran it and the investors (institutional or otherwise) into the dirt should consider whether Wachovia spent to much time playing 'good corporate citizen' for the very few, rich and well connected and not enough time actually engaging in the business of banking and making money.

Six months ago, I ask staff to provide the Commission with a list of the impact to the grand arts conglomeration and was told they would get around to it. I wondered if the money that Wachovia was dumping into the arts projects would be impacted by their questionable financial condition. I was told not to worry. I suggested that we add a provision to keep jobs in Charlotte and prevent overseas job transfers. The Democrats on the Commission said 'no way' (it would have tied Wachovia's hands and they are a 'good corporate citizen').

I am not Alfred E. Newman. As a CPA I did worry but in Charlotte asking about any 'arts' project is verboten and pol's are simply not allowed to ask Wachovia to be responsible. 

To me, a corporation is not being a 'good corporate citizen' when it cuts a deal that is both bad for the average taxpayer and results in the death of the institution that could cost Charlotte tens of thousands of jobs. To be sure, the arts deal did not 'kill' Wachovia alone but it certainly did distract its leaders during a time when their attention should have been exclusively focused on survival.

In Charlotte however we define Wachovia as a 'good corporate citizen' regardless of the cost of such deals to shareholders and the community at large. Wachovia was distracted by and engaged in projects pushed by the select few (skyscrapers, theaters, museums and other such amenities) to make Charlotte into what the few view as "world class".

I wonder if losing Wachovia makes us more world class than we were yesterday?

The City and County have not received ANY information on the status of these various indirect financed projects by Wachovia.

I don't know what Wachovia (or Citi) will do with these arts projects that are in 'progress' with Wachovia shareholder money but if I were a guy who had invested in Wachovia at $18 a share I might want to sue the exec's for not paying attention to business, engaging in philanthropy at their expense and using their money without their permission to engage in large scale projects that have NOTHING to do with the business of banking but everything to do with Charlotte's culture of elitism at shareholder expense.

Some questions about Wachovia's 'arts' projects that remain unanswered as a result of their failure:
 
·Are these projects being financed with Wachovia cash?
·Are the advances owned by the individual banks to be sold or the 'holding company'?
·How far along are each of the facilities?
·Is construction continuing or will it be halted while the Wachovia deal is worked out (they halted trading of the stock but won't halt construction of arts projects)?
·Will Citi acquire the obligation to finish construction?
·Will Wachovia be able to finish if Citi does not acquire that obligation?
·Are these projects effectively cancelled due to the Citi acquisition?
·How much of an obligation does government have to pay the future $50 million in property taxes?
·Does the government have a legal obligation to purchase the defunct arts loans that Wachovia advanced?

Banking is about lending money and insuring repayment. It is about taking deposits from people and promising to keep them safe. It is not about financing an uptown skyscraper that is not needed (but could have been built for less in other places), nor constructing museums, theaters and other items with shareholder money up front.

I don't own any Wachovia stock but if I did, I would certainly consider a suit against the executive management and board for their imprudence and poor lack of judgment in allocating scarce Wachovia resources.

Commissioner Bill James has represented District 6 on the Mecklenburg County Commission for 12 years. He is a CPA by trade having spent 15 years or so working for various ‘big 6’ accounting firms dealing with banks and financial institutions around the globe.