Mergers redraw banking borders

Wachovia latest victim of financial industry's turmoil

By David Milstead, Rocky Mountain News (Contact)

Published September 30, 2008 at 12:05 a.m.

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Javier Manzano / The Rocky

Pedestrians walk past a Washington Mutual branch on the 16th Street Mall, a day after JPMorgan Chase & Co. acquired the troubled competitor. Washington Mutual was seized last week by federal regulators in the largest failure to date of a U.S. bank.

Brian Lehmann / The Rocky

Wachovia has 34 offices in Colorado, including this branch at 3155 E. First Ave. in Cherry Creek.

The financial-industry bloodbath that has now claimed Wachovia is reshaping Colorado's banking landscape.

Last week's seizure of Seattle- based Washington Mutual by federal regulators handed 40 new Colorado bank branches to JPMorgan Chase & Co., the New York-based giant that has been steadily building its presence here over the last eight years and currently has 91 branches.

Monday's news that Charlotte, N.C.-based Wachovia will sell its retail banking operations to Citigroup means that the New York- based giant will become Colorado's fourth-biggest bank by deposits. Wachovia has 34 offices in the state.

Combined, the two transactions shift 74 offices and roughly $6 billion in Colorado deposits to two of the top three American banks. (JPMorgan Chase's Chase Bank and Citigroup's Citi bank trail Charlotte-based Bank of America in number of locations.)

Citigroup CEO Vikram Pandit said the deal "creates a dominant U.S. franchise. This is one of those rare high-return acquisitions in which we have contained the risks. The economics are exceptional."

Similarly, JPMorgan CEO Jamie Dimon said Washington Mutual "is a fabulous franchise. We think we got this at a price that protects us."

With that deal, JPMorgan Chase acquired a company it once viewed as a formidable retail competitor.

WaMu, as it's known, announced in April 2002 it was entering Colorado with up to 30 new offices over two years. At the time, Chase Bank's Colorado offices belonged to Bank One, which later merged into JPMorgan Chase. Bank One had just embarked on an aggressive building plan to boost its lackluster Colorado presence, and WaMu had the potential of picking off both locations and new customers.

But while WaMu peaked at 55 Colorado locations in fall 2006, it began to retrench and close offices as it struggled with the effects of its heavy emphasis on mortgage lending.

And while its snazzy retail branches looked inviting, the company never gained significant market share. In June 2007, the most recent data available from federal regulators, WaMu had 0.6 percent of the market with just under $500 million in deposits, or roughly $10 million per branch office. Chase Bank, by contrast, had about $50 million in deposits per branch at that time.

While Chase has emphasized free-standing brick-and-mortar branches, WaMu opened many new offices in strip malls.

"It's safe to say they had a slightly different real-estate strategy than Chase," said Chase spokeswoman Mary Jane Rogers. Rogers said Chase Bank will take "an individual, branch-by- branch look" at which WaMu offices it will ultimately keep. For now, the WaMu offices will retain their names.

Wachovia had represented a new competitive challenge to Colorado's banks. The bank entered the state in 2006 with its purchase of Oakland, Calif.- based World Savings Bank, but didn't rename its offices until October 2007.

Wachovia, with its full line of business banking and investment services, marked a sharp departure from World Savings, a traditional thrift that paid high CD rates and used the deposits to fund home mortgages. As one of the biggest banks in the U.S., Wachovia seemed poised to do battle with Wells Fargo, U.S. Bank and Chase Bank.

It was World Savings Bank's mortgage portfolio, however, that played a role in Wachovia's downfall. (How large a role is disputed by Herbert and Marion Sandler, the former executives and controlling shareholders of the company.)

With the Wachovia purchase, Citibank gets its first retail offices in Colorado. The bank has about 1,350 offices, according to federal data, with nearly half in New York and California. Texas and Nevada are the only two states west of Illinois where it has locations.

Finance Editor David Milstead can be reached at milstead@RockyMountainNews.com or 303-954-2648.

Big players get bigger

* Citigroup will buy Wachovia's banking operations for $2.2 billion and the assumption of $53 billion in debt. They get $700 billion in assets and about 3,300 branches.

* Citibank will now have more than 4,300 U.S. branches, $600 billion in U.S. deposits and $1.3 trillion in worldwide assets.

* JPMorgan Chase will pay $1.9 billion for WaMu's 2,300 branches and $310 billion in assets.

* Chase Bank will have 5,400 offices with $900 billion in deposits.

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