Wachovia and Rescue Plan

Last week was very interesting week with one up and so many downs. Let's start with Wachovia.
Week started badly for Wachovia - 4th largest bank got sold forcefully to Citibank at $1 and by the end of week there were two suitors for the same bank - Wells Fargo and Citibank.

Citibank Deal:

• Offers $1 to Wachovia holding company for all banking assets - this is a robbery IMO: Shareholders not happy
  
• Taxpayers on hook for billions of losses: Taxpayers not happy
  
• Company gets broken and remaining Wachovia remains with only securities and AG Edwards.: Employees not happy

Wells Fargo Deal:

• Offers about $ 7 for whole company. Much better than broken company and only $1 for banking assets: Shareholders happy
• No taxpayer money on hook: Taxpayers happy
• Company remains as whole and become part of stronger bank: Employees happy

So it looks very obvious that Wells Fargo should win the deal. But hold on - there are regulators in Washington who wants to force this shotgun marriages and let select banks like JP Morgan and Citibank at expense of taxpayers. This is pure robbery. No wonder Citibank added nearly $15 B on Monday when they got Wachovia and dropped by $15 B on Friday when markets realized that they are not going to get Wachovia. For Citibank, best way to win this is offer $10 for all of Wachovia and get over it that they are not getting Wachovia.

As investor, how does one benefit ? Stay away from Wachovia common stock - it's just too volatile. Instead check out Wachovia preferred shares (WB-PS, WB-PT) which would survive and get assumed by acquiring company. They are yielding over 15-16% at current rates and would return to their full face values (e.g. $25 for WB-PS) once deal goes through

Rescue Plan:
Finally rescue (aka bailout) plan is signed by President Bush. It may not stop economy going into recession but would provide some liquidity to credit markets and small boost to stock market. It's scary to compare current conditions to depression of 1929. Hope country does not go into that direction

Only silver lining of this crisis is that Obama is getting very near to becoming President of USA. Republicans have really messed with economy and country over last 8 years and McCain is offering nothing better than same policies of last 8 years. We absolutely need change. I was impressed with Joe Biden's clarity of thoughts and got assured that Obama has picked right candidate as his running mate

Go Obama-Biden!

Have a good weekend!

/Shyam