Board member Casteen on Wachovia: 'Talk to them'
On Monday, September 29, the day banking giant Wachovia was in the depths of its monumental stock free-fall and then-pending sale to Citigroup, UVA president and company board member John Casteen was cutting the ribbon on a new dorm at his university. When the Hook asked if he had anything to say about the malaise of the bank he's paid to govern, his response was brief.
"It's very sad," Casteen said, "but you'll have to talk to them."
At that point, before the Hook could ask a follow-up, an aide said that Casteen "really has to go."
This day a year ago, Wachovia stock traded for $52.27 per share. When the market opened this morning, the stock's value had plummeted to $5.74. According to one analyst, board members like Casteen–- who earn six-figure sums for their board work–- can't completely wash their hands of this nosedive.
"The board failed," says SNL Financial banking analyst Sebastian Hindman, "because they supported a series of ill-conceived acquisitions."
Wachovia was not always in such dire straits. Back in 1997, Wachovia was the picture of stability in the banking community, such that the two leading Virginia banks–- Richmond's Central Fidelity and Charlottesville's Jefferson National–- sought out Charlotte-based Wachovia to buy their respective companies.
Jefferson National shareholders, who are legion in Charlottesville, had reason to smile as the homegrown company was valued at $542 million, and they got paid with Wachovia stock.
Recent events do not sit well with O. Kenton McCartney, the last president of Jefferson National and the man who orchestrated its purchase by Wachovia, which he notes was then one of just two American banks with a AAA bond rating.
"I'm sad and angry about the whole financial situation," says McCartney. "Financial institutions forgot what they should be doing."
According to most analysts, Wachovia's trouble dates back to 2001, when it was purchased by First Union Corporation, and in an unconventional move, got to keep its name. The combined behemoth, by then the largest bank in the Southeast, continued devouring smaller banks. In May 2006, Wachovia finally ate one too many and began to get sick.
"The worst came when they acquired Golden West, a bank on the west coast, that had made a lot of exotic mortgages," says Hindman. "One of their offerings was called 'pick-a-payment,' where you could borrow from them and then basically choose what you wanted to pay them."
The acquisition was not without warning bells. "Even at the time," Hindman says, "many thought of this as a risky transaction."
The Wachovia board–- whose members earn annual compensation of $70,000 in cash and $150,000 in stock–- unanimously approved the Golden West deal put together by CEO and board chair Ken Thompson. So when the sub-prime mortgage crisis began to take down bank after bank earlier this year, Wachovia was not immune.
"Thompson even had to go public and say this was a bad move," says Hindman. "It blew up in their faces."
Finally, Thompson had to "retire at the request of the board" on June 2, though the board wished to make clear that there was "no single precipitating event" for Thompson's ouster. In a last-ditch effort to save the company, the board hired Robert Steel, former vice chair of Goldman Sachs and then-U.S. Treasury undersecretary, to fix the mess. Hindman says this proved to be too little too late.
"With all those bad assets," says Hindman, "I'm not sure anyone could have saved that company."
The fate of Wachovia hangs in limbo at the time of this story, as two other mega-banks–- New York's Citigroup and San Francisco's Wells Fargo–- slug it out in the courts over this once-big fish now reduced to minnow-hood.
So what does all this mean for Wachovia customers and stockholders?
"Those with accounts shouldn't have anything to worry about," says Hindman, "but if you were relying on Wachovia stock for your retirement, I hope you diversified before all this."