Parchayi.com - Personal Finance Simplified

Update - 9:50 am (30th) - S&P still rates Wachovia a hold with a new price target of $2.50, which has already been crossed today. The stock opened at $2.30 and is moving higher.

Update - 6:55 pm - Looks like stocks are all higher in after market trading, Wachovia is nearly at $2. This post also appeared on seeking alpha here, read through the comments for other ways of valuing Wachovia. Personally I’m not happy with this deal at all but we’ll find out if it was justified based on what Citibank (the worst possible canditate for this) reports in the future. Even though Feds tried to make it clear that Wachovia did not ‘fail’, that is what it appears like - A forced failure of Wachovia.

Update - 3:24 pm - WB started trading about half an hour ago and is currently trading at $1.75, making me a couple ot thousand $ poorer not counting the rest of the bloodbath today, thanks to the house voting against the bailout. This probably means that the Fed might have to broker more deals. My estimate of Wachovia’s value was about 4$/share after this stupid deal plus 1$ of Citibank stock = a total of $5

Update - 12:56 pm - “The last sale on the NYSE for Wachovia was at the market close on Friday at $10,” said Scott Peterson, a spokesman for NYSE Regulation. As for when the stock was expected to open, Peterson said, “We are in consultation with the company now. Stay tuned.”
End Update

Update - 12:41 pm - I’ve heard conflicting reports on whether the Wealth Management Unit is included in the Citigroup deal or not. More later.
End Update

As a Wachovia investor, I was shocked by this mornings news - too much too fast. Anyway here is what I got from all the news in the morning.

Citi takes over Wachovia banking/mortgage business: Citi pays Wachovia $2.1 billion in stock in exchange for Wachovia’s banking and mortgage assets (over 700 billion in deposits+assets). Citi also assumes about 53 billion in debt. Citi needs to cover losses upto $42 billion on mortgage related losses. Anything beyond that is guarateed by the Federal govt. In exchange for that guarantee, the Feds get $12 billion in preferred Citi stock which pays 6% interest - possibly a sweet deal for the Feds. Wachovias over 300 billion mortgage portfolio had about 120 billion in option-ARM mortgages and expected losses on about 14% of those loans but really, is the deal justified?

Wachovia keeps the other businesses: Wacovia Securities, Evergreen Investments, Wachovia Insurance Services and Wachovia Wealth Management will remain part of Wachovia. The question here is how much is the remaining Wachovia worth now? Wachovia securities is the nations second largest investment firm, Wachovia Insurance Services is the 12th largest insurance brokerage and Evergreen Investments is Americas 29th largest asset management company. So now each Wachovia share is worth $1 from Citibanks 2.1 billion + whatever these businesses are worth.

In pre market trading, even before any details were announced, Wachovia stock dropped 90% and trading was halted at the NYSE on WB for the day. In spite of everything S&P still maintains it’s hold rating on WB but will revise it’s price target.

What does all this mean for you - well, I’m not even sure this whole Wachovia mess was necessary in the face of the bailout. But the question facing us now is - is the bailout necessary in the the face of this deal?? Your deposits at both Citi and Wachovia are safe and FDIC doesn’t need to spend anything here. Your local Wachovia will soon become a Citibank and Citibank plans on moving it’s banking headquarters to Charlotte, NC while keeping it’s investment headquarters in NYC. Since Citi and Wachovia don’t have much of an overlap in branches, not much is expected to change for depositors.

I will update this post, with more details as they unravel.

I’ve not been posting here for a while because it’s been all the same for the last month. Credit crunch continues, takes another victim - Lehman. Autos still in doldrums - Auto sales improved last month because automakers are literally giving people cars at cost. I don’t see how the American automakers can continue this for long. Even tech seems to be finally giving in to this slowdown with stocks dropping way off highs. Amongst significant news in tech in the last few months is that Dell plans to sell off its factories. I’m not sure if there are any sectors that are high YTD. Even PRWCX, a fund that has had almost no negative years is down 3.5% YTD

The other major event going on is the American elections - same old ads about what the other person will not do, nothing concrete about what each person will do. McCain picks a seemingly white trash (with pregnant 17yr old daughter and drug addict son) vice president only because she is a woman to combat Obamas not picking Hillary. But it seems to be working out for McCain.

Personally, I’ve been really busy following netbooks on my other blog and making updates to The Internet Book Database, especially in launching a new Adult Book Database because of threats from Google to disable advertising if Adult books are listed on iBookDB.

The only recent stock purchases I made were WB at about $10 and some ADM. I am looking at more ADM when enough money collects in my brokerage account from monthly accumulations. Also we moved cash to Capital One from Emigrant Direct because Emigrant Direct interest rates dropped significantly. Just yesterday I heard that Emigrant opened a new online bank - Dollar Savings Direct with a 3.75% APY. This is completely separate from the Emigrant Direct savings account and money cannot be directly transferred from one to another.

As far as the Indian stock market goes, it has been even more volatile than the US stock market and headed downwards even faster. When the market stabilizes a little bit, I might get back in.

The only good financial news in the last few months has been declining gas prices. IMHO, that trend will continue. People have finally begun to realize that drilling for more oil is only a temporary patch to oil problems. We need more alternative fuels - more energy from Wind, Solar, Natural Gas, Biodiesel etc. and I’m hoping that some day my investment in NBF will pay off. Right now though the stock is looking like a really bad decision for the short term. But if it starts rising I might get some more. Alternative energy seems to be like a good long term bet.