Wachovia Corporation NYSE: WB, based in Charlotte, North Carolina is one of the largest banking chains in the United States.
Origin of Corporate Name
Wachovia, pronounced wah-KO-vee-yah, has one of the most unusual corporate names in the United States. The origin of the name is the Latin form of the German name Wachau. When Moravian settlers arrived in Bethabara, North Carolina in 1753, they gave this name to the land they acquired, because it resembled a valley along the Danube River called Der Wachau. The area formerly known as Bethabara is now inside the city limits of Winston-Salem, North Carolina.
Today's Wachovia Corporation was created by the merger of the legacy Wachovia Corporation and First Union Corporation. While the transaction was billed as a merger of equals, the transaction was actually a purchase of the legacy Wachovia by Charlotte-based First Union Corporation. First Union then took the Wachovia name.
First Union Corporation was a large banking chain based in Charlotte, North Carolina. It merged with Wachovia Corporation in 2001, and the combined company kept Wachovia's name.
First Union National Bank of North Carolina was originally formed in 1958 with the merger of Union National Bank and First National Bank and Trust Company of Asheville. Over the decades, First Union purchased over 80 other banks before purchasing Wachovia, the majority of them in the 1990s.
CoreStates Financial Purchase
CoreStates Financial Corporation, headquartered in Philadelphia, Pennsylvania, was acquired by First Union in April 1998.
The purchase proved to be a fiasco for a number of reasons. To start with, First Union attempted to rapidly integrate CoreStates' systems into First Union. This attempt led to multiple problems: poorly trained employees (as CoreStates tellers were not familiar with the new systems) and First Union and CoreStates' systems unable to communicate with each other, which led to such problems as account access issues and payments not being correctly applied to loans. As a result, customers left the bank in droves - First Union experienced a 19 percent attrition rate - because of poor customer service and the account issues. Furthermore, First Union substanially overpaid for CoreStates at over 4 times book value.
Partly due to the CoreStates purchase and partially due to 80 other bank purchases over the last few years, First Union experienced several years of lower earnings and no dividend growth. First Union had to restructure and lay off thousands of employees in 1999, partly as a result of the purchase of CoreStates.
Wachovia Bank and Trust was formed in 1911 by the merger of Wachovia National Bank (founded 1879) and Wachovia Loan and Trust (founded 1893), and was located in Winston-Salem, North Carolina. On December 12, 1986 Wachovia took over First Atlanta. Founded as Atlanta National Bank on September 14, 1865, and later renamed to First National Bank of Atlanta, this institution was the oldest national bank in Atlanta. This purchase made legacy Wachovia one of the few companies with dual headquarters: one in Winston-Salem and one in Atlanta. In 1998, legacy Wachovia acquired two Virginia-based banks, Jefferson National Bank and Central Fidelity Bank. In 2000, legacy Wachovia made its final purchase, which was Republic Security Bank, giving its first entry into Florida.
Merger of First Union and Wachovia
On April 16, 2001, Charlotte-based First Union Corporation announced it would merge with Winston-Salem-based Wachovia Corporation. Although the merger was billed in the proxy as a merger of equals by pooling, the deal was actually a purchase of Wachovia by First Union. This was viewed with great surprise by the financial press and security analysts. While Wachovia had been viewed as an acquisition candidate after running into problems with earnings and credit quality in 2000, the suitor shocked analysts as most assumed that should Wachovia be sold it would be to SunTrust in the long-assumed "Smoke-and-Coke" merger (the nickname coming from Wachovia's long relationship with tobacco companies and SunTrust's holdings of Coke stock dating from Coke's initial public offering). The former CEO of Wachovia, Bud Baker, later said that he and First Union's CEO, Ken Thompson, met at interstate motels to keep their talks of merger as secret as possible.
As an important part of the deal, First Union would shed its name and assumed the Wachovia identity and stock ticker. Analysts said this move was most likely to help First Union acquire a new identity, as Wachovia's reputation was far better with consumers than First Union. At the same time, Wachovia's name and corporate identity would survive, an important source of pride to Wachovia's board.
The deal was met with criticism and doubt by several groups. Analysts were concerned of First Union's ability to merge with another large company because of the CoreStates deal. Citizens and policitians of Winston-Salem suffered from a hurt of their civic pride because the city would lose Wachovia's corporate headquarters to Charlotte, partly because Winston-Salem is a much smaller city than Charlotte. The city of Winston-Salem was concerned both by job losses by the move and the loss of stature from losing a corporation. First Union responded to these concerns by placing the wealth management and Carolinas-region headquarters in Winston-Salem.
On May 14, 2001, Atlanta-based SunTrust announced a rival takeover bid for Wachovia, the first hostile takeover attempt in the banking sector in many years. In its effort to make the "Smoke-and-Coke" deal appeal to investors, SunTrust argued that it would provide a smoother transition than First Union and offered a higher cash price for Wachovia stock than First Union. Long a rumored suitor for Wachovia, SunTrust had been in on-again off-again merger talks with it over the course of many years, with both Wachovia and SunTrust eventually confirming the most recent effort took place during the winter of 2000 before Wachovia terminated the discussions.
On August 3, 2001, Wachovia shareholders approved the First Union deal. They rejected SunTrust's attempts to elect a new Board of Directors for Wachovia, and thus, ended SunTrust's hostile takeover.
Another problem concerned each banks' credit card divisions. In April of 2001, Wachovia agreed to sell its $8 billon credit card portfolio to Bank One. The cards, which would have still been branded as Wachovia, would have been issued through Bank One's First USA division. First Union sold their credit card portfolio to MBNA in August of 2000. After entering into negotiations, the new Wachovia agreed to buy back its portfolio from Bank One in September of 2001 and resell it to MBNA. Wachovia paid Bank One a $350 million termination fee.
On September 4, 2001, First Union and Wachovia officially merged to form the new Wachovia Corporation.
In order to prevent a repeat of the CoreStates fiasco, the new Wachovia took a deliberately long period of time to combine the banking operations of the new company. Over a period of several years, legacy Wachovia computer systems were converted to First Union systems. The company first began converting systems in the Southeast United States (where both banks had branches) before moving to the Northeast, where First Union branches only had to change their signs to reflect the new company name and logo. This process officially ended on August 18, 2003, almost 2 years after the merger took place.
In comparison the CoreStates purchase, the merger of First Union and Wachovia has been a huge success. The company's slow strategy to combine seems to have prevented large customer attrition rates. In fact, Wachovia has been ranked number one in customer satisfaction every year since the merger. In addition, the company's stock price has remained strong, and provided a good return to legacy Wachovia shareholders, in contrast to SunTrust's claims during the takeover attempt. The company has also been reporting record revenues since the merger.
When Wachovia and First Union merged, the multiple skyscrapers with First Union's name came under Wachovia's name. Charlotte, North Carolina's One, Two, Three, and Four First Union buildings became One, Two, Three, and Four, Wachovia Center (respectively), and the 55-story First Union Tower in downtown Miami became the Wachovia Tower. The merger also affected the names of the indoor professional sports arenas in Philadelphia and Wilkes-Barre, Pennsylvania. Formerly known as the First Union Center and the First Union Spectrum (both Philadelphia) and First Union Arena (Wilkes-Barre), they are now known as the Wachovia Center, Wachovia Spectrum, and Wachovia Arena.
Wachovia is currently ranked number 23 on the Forbes 500 list for 2003, and is the fourth largest bank holding company in the US. It has banking centers in 15 East coast states and Washington, D.C. It also operates Wachovia Securities, its brokerage services subsidiary.
On November 1, 2004, Wachovia completed the acquisition of banking competitor SouthTrust Corporation, a transaction valued at $14.3 billion. The merger created the largest bank in the southeast, the fourth largest bank in the United States in terms of holdings, and the second largest in terms of number of branches.
In June of 2005, Wachovia negotated to purchase monoline credit card company MBNA. However, the deal fell through when Wachovia balked at MBNA's purchase price. Within a week of the deal's collapse, MBNA entered into an agreement to be purchased by Wachovia's chief rival, Bank of America. Wachovia is set to get $100 million out of this deal. Multiple sources have reported that as part of its agreement with Wachovia, MBNA is required to pay the nine-figure sum if it ever sells to Wachovia's cross-town rival Bank of America. The payment is part of the agreement Wachovia predecessor First Union made in 2000 when it sold its credit card portfolio to MBNA.