Wachovia/SouthTrust
The next domino falls in the commercial banking business.
Wachovia, the 4th largest US bank announced that it would acquire a major Southern regional bank, Alabama-based SouthTrust. The $14 billion dollar move comes in the wake of a series of major bank takeovers earlier this year, by rivals Bank of America, and J.P. Morgan Chase, and others.
Wachovia, founded by Moravian immigrants to North Carolina in 1879, itself is the result of a series of banking deals culminating in the $13 billion 2001 merger of Wachovia and First Union Bank. The new deal will extend Wachovia's strong presence in the South and extend its dealings to the major Texas market, an area Wachovia already had plans to expand into.
A variety of commentators are complaining that Wachovia is paying too much for SouthTrust. They always say that. But Wachovia, along with its predecessor First Union, have done the same before, paying high in order to expand at ant costs. According to a New York Times story ("Wachovia Hopes South Trust Deal Repeats Success of 2001 Merger", 6/22/2004):
When {Wachovia CEO] Mr. Thompson took over as chief executive of First Union in March 2000, the bank was reeling from acquisitions by his predecessor, Edward E. Crutchfield Jr. One of the banks, CoreStates Financial, was bought in 1997 for $17.1 billion, or six times book value. The same year, the bank paid $2 billion for the Money Store, a lender to consumers considered high credit risks. Mr. Thompson ended up writing off that deal for $3.8 billion, then one of the most expensive write-offs by an American company
This is a deal that's almost sure to trigger yet more deals. According to a Wall Street Journal article, "Wachovia, SouthTrust Agree To a $14.3 Billion Merger", 6/21/2004)
The expected acquisition is notable because Birmingham's four big banks -- SouthTrust, AmSouth Bancorp., Compass Bancshares Inc. and Regions Financial Corp. -- have remained independent as other U.S. banks have been swept up in mergers. [This] decision could spark speculation that the other Birmingham holdouts may be bought.
The motivation is clear. SouthTrust fears being crushed if other, bigger banks raid its territory. Wachovia feels the need to keep up with the (now) bug three. Wachovia's biggest weakness is its geographical limitation to the East Coast and its lack of international reach. This merger helps solve the former problem. As the #4 bank, Wachovia is in a danger of slipping behind the pack.
Already there is talk of dumping some of SouthTrust branches. A report in the Nashville City Paper (6/22/2004) sees it likely that Wachovia will drop its Middle Tennessee bank branches, since Wachovia reportedly wants to be #1 or #2 in any given market.
And will all this help the customers. Certainly not. One more regional lender is now gone. SouthTrust customers are a few steps further removed from the management. And cuts in service and jobs as well as higher banking fees will carry the heavy burden of financing the deal.
