wachovia, case memorandum to board of directors (15 pages)

15
MEMORADUM: THROUGH: FROM: SUBJECT: Recommendation iiATtRiAL REDACTED ~T':'''~J\~''~.'''')' ,,¡--:;f. September 29,2008 The Board of Directors . ~ Mitchell L. Glassman, Director ~ ~ Division of Resolutions and Receiverships Sandra L. Thompson, Director c8 \ 1L~ Division of Supervision and Consumer Protection James R. Wigand, Deputy Director ~ Franchise and Asset Marketing Branch Division of Resolutions and Receiverships Herbert J. Held, Assistant Directo"~~ Franchise and Asset Marketing B~J?' Division of Resolutions and Receiverships Wachovia Ban, National Association, Charlotte, North Carolina Wachovia Mortgage, FSB, Nort Las Vegas, Nevada Wachovia Ban, FSB, Houston, Texas Wachovia Ban of Delaware, National Association, Wilmington, DE Wachovia Card Services, National Association, Atlanta, Georgia Wachovia Corporation (Ban Holding Company) Information (As of June 30, 2008): Tota Assets: $781,883,478,000 Tota Deposits (including Foreign): $475,172,374,000 Uninsured Deposits: $157,100,000,000 Foreign Deposits: $53,170,000,000 Tier 1 Leverage/Total Risk Based (Lead Ban): 6.27%/11.58% ---

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After the complaint in Vern McKinley v. FDIC and Board of Governors of the Federal Reserve was filed the FDIC provided a previously undisclosed case memorandum supporting the minutes. This case memorandum is heavily redacted and contains roughly 2 pages out of the 11 pages of the body of the memorandum. The other approximate 9 pages are redacted.

TRANSCRIPT

Page 1: Wachovia, Case Memorandum to Board of Directors (15 Pages)

MEMORADUM:

THROUGH:

FROM:

SUBJECT:

Recommendation

iiATtRiAL REDACTED~T':'''~J\~''~.'''')'

,,¡--:;f.

September 29,2008

The Board of Directors . ~Mitchell L. Glassman, Director ~ ~Division of Resolutions and Receiverships

Sandra L. Thompson, Director c8 \ 1L~Division of Supervision and Consumer Protection

James R. Wigand, Deputy Director ~Franchise and Asset Marketing BranchDivision of Resolutions and Receiverships

Herbert J. Held, Assistant Directo"~~Franchise and Asset Marketing B~J?'Division of Resolutions and Receiverships

Wachovia Ban, National Association, Charlotte, North CarolinaWachovia Mortgage, FSB, Nort Las Vegas, NevadaWachovia Ban, FSB, Houston, TexasWachovia Ban of Delaware, National Association, Wilmington, DEWachovia Card Services, National Association, Atlanta, Georgia

Wachovia Corporation (Ban Holding Company) Information(As of June 30, 2008):

Tota Assets: $781,883,478,000

Tota Deposits (including Foreign): $475,172,374,000Uninsured Deposits: $157,100,000,000

Foreign Deposits: $53,170,000,000Tier 1 Leverage/Total Risk Based (Lead Ban): 6.27%/11.58%

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Page 2: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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Executive Sumar

Wachovia Ban, NA (Bank) is a nationally charered ban founded in 1879 that is wholly

owned by Wachovia Corporation, a financial holding company regulated by the Federal Reserve.

The Ban is the four largest ban in the countr and the predominant legal entity withn

Wachovia Corporation, representing 83 percent of consolidated holding company assets. The

insured legal entities ofWachovia Corporation consist of

thee national bans and two Federal

savings bans. Other significant holding company subsidiares include Wachovia Capital

Markets, LLC, and Wachovia Securities, LLC. The Ban operates approximately 3,400 banng

centers in 21 states, primarily along the eastern and gulf coasts and in Californa, and engages in

foreign activities. ~ - ....

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2

Page 3: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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Based on the analysis ofCitigroup's proposal, staff

recommends accepting the Citigroup,

Inc. bid to resolve the five insured depository institutions and to resolve the systemic risk posed

by a possible failure of Wachovia Corporation and its affliate bans and thrfts.

Supervisory History and Condition

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3

Page 4: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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Page 5: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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Supervisory History

The insured legal entities ofWachovia Corporation are shown in the table below.

EWQ¡am,.j ;¡èw;i.g;:g¿;km_i,k,&"L$ki;$;å'K¡;~::¡k,...ìl:&li_...;¡!11

Wachovia Bank, NA---

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Page 6: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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Page 7: Wachovia, Case Memorandum to Board of Directors (15 Pages)

The Ban's former chief executive offcer, Ken Thompson, was removed on June 2,

2008, and Robert Steel was selected as his replacement on July 9, 2008. The Ban's chief

financial offcer and chief risk offcer were also subsequently replaced. ,

Wachovia Mortgage FSB and Wachovia Bank FSB

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Wachovia Bank of Delaware NA and Wachovia Card Services

Wachovia Ban of Delaware NA represents a more traditional institution with no pay-

option ARM exposure. Likewise, Wachovia Card Services is a recently formed credit card

lending operation.

Marketing

7

Page 8: Wachovia, Case Memorandum to Board of Directors (15 Pages)

On Septembe 28, 2008, FDIC staff

began discussions with CitigrouP and Wells Fargo,

both of which submittd bids to the FDIC on the same day. Both bids sought open ban

assistace from the FDIC..a ~ ~ ..-- -~ .---_.___.......A

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The CitigrouP bid requests tht the FDIC provide loss sharg on a $312 bilion pool of

assets. Losses would be sbaed as follows: (i) the first $30.0 bilion oflosses in the pool.

CitigruP asswes i 00 percent, and (ii) CitigruP assumes $4 bilion a year of losses for the

years. Additionally , FDIC will recive face value of $12 bilion in preferrd stock and waants.

However, based upon

the tcos of the CitigrouP proposal, these losses would be absorbed by CitigruP and result in no

loss to the Deposit Insurance Fund.

8

Page 9: Wachovia, Case Memorandum to Board of Directors (15 Pages)

Systemic Risk

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9

Page 10: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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Page 11: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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_'_ _ ___ .___ ------.1 -------i-#---- ------- -- .- ----- .-- -..-r---.-......

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Conclusion

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Page 12: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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Other Information

If you have any questions concerning this case, please call Herbert Held at extension

br Sharon Yore at extension

12

Page 13: Wachovia, Case Memorandum to Board of Directors (15 Pages)

This recommendation is prepared by:

Sh~~lVFranchise and Asset MarketingDRR - Washington

This recommendation is supported by:

George FrenchDeputy Director, DSC

~r~.L--~a A. Kelsey / or -

General Counsel

13

Page 14: Wachovia, Case Memorandum to Board of Directors (15 Pages)

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bßRESOLUTION - Citiban

WHEREAS, sta has advised the Board of Directors ("Board") of the Federal

Deposit Insurance Corporation ("FDIC") that Wachovia Ban, National Association,Charlotte, Nort Carolina, Wachovia Mortgage, FSB, North Las Vegas, Nevada,Wachovia Ban of Delaware, National Association, Wilmington, Delaware, WachoviaBan, FSB, Houston. Texas. and Wachovia Card Services, National Association, AtlantaGeorgia ("Bans"), and

WHREAS, the Division of Resolutions and Receiverships ("DRR") has.bids from finan ' and'.-WHEREAS, DRR has i:

B. and

WHEREAS, a proposal for the resolution of the Bans without the appointmentof the FDIC as receiver has been received from Citigroup, Inc., New York, New York("Citi"), which involves the merger or consolidation of

the Bans with another insured

depository institution or the sale of any or all of the assets of the Bans or the assumptionof any or all of the Bans' liabilties by another insured depository institution, or theacquisition of the stock of the Bans, any of which would benefit the shareholders of theBans and except under limited circumstaces is precluded by Section 1 1

(a) (4)(C) of the

Federal Deposit Insurance Act, as amended ("Act"), 12 U.S.C. l821(a) (4)(C); and

WHEREAS, the Board has been advised that the

WHEREAS, staf has presented to the Board information indicating theliquidation of the Bans under Section 11 of the Act, 12 U.S.C. 1821, would have serious

adverse effects on economic conditions or financial stability; and

WHEREAS, staff has advised that assistance to the Bans under Section l3( c) ofthe Act, 12 USC 1823(c)(1), without the appointment of

the FDIC as receiver will avoid

or mitigate the serious adverse effects on economic conditions or financial stability; and

WHREAS, staffhas advised that severe financial conditions exist whichtheaten the stability of a significant number of insured depository institutions or ofinsured depository institutions possessing signficant financial resources and the Bansare insured depository institutions under such threat of instability.

NOW, THEREFORE, BE IT RESOLVED, that by the vote of at least two-thrdsof the members of the Board, the Board finds that the liquidation of the Bans, as well asthe likely consequent failure ofWachovia Corporation, would have serious adverseeffects on economic conditions or financial stabilty and would create systemic risk tothe credit markets.

Page 15: Wachovia, Case Memorandum to Board of Directors (15 Pages)

BE IT FURTHER RESOLVED, that by the vote of at least two-thrds of themembers of the Board, the Board finds that the proposal received from Citi whichinvolves the merger or consolidation of the Bans with another insured depositoryinstitution or the sale of any or all of the assets of the Bans or the assumption of any orall of the Bans' liabilities by another insured depository institution, or the acquisition ofthe stock of the Bans and which requires the provision of assistance under SectionB( c )(2) of the Act, 12 USC i 823( c )(2), in the form ofloans to, deposits in, the purchaseof assets or securties of, the assumption of liabilities of, guarantees against loss to, orcontrbutions to, the Bans or their acquiror will mitigate the serious adverse effects oneconomic conditions or financial stability that would be caused by the Bans' failure.

BE IT FURTHER RESOLVED, that severe financial conditions exist whichtheaten the stability of a significant number of insured depository institutions or ofinsured depository institutions possessing significant financial resources and the Bansare insured depository institutions under such threat of instability and that the Board taesths action in order to lessen the risk to the Corporation, and systemic risks, posed by theBans, and that the proposal by Citi wil do so in the least costly of all availablemethods..

BE IT FURTHER RESOLVED, the Board hereby authorizes the Chairman, orher designee, to provide the wrtten recommendation to the Secretar of the Treasurspecified under Section 13(c)(4) (G)(i) of the Act, 12 USC 1823(c)(4)(G)(i).

BE IT FURTHER RESOLVED, the Board hereby authorizes the Director, DRR,or his designee, and all other FDIC staff to tae all appropriate action to implement theprovision of assistace authorized hereunder, including but not limited to: credit supportin the form of loan guaantees, the purchase of warants, and loss sharng; and to take anyother action necessar and appropriate in connection with this matter.

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