US Financial Crisis: Effects on Global Banking


Code : ECC0006

Year :

Industry : Banking, Insurance and Financial Services

Region : US

Teaching Note:Not Available

Structured Assignment :Not Available

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Corporate Background Founded in 1879 as Wachovia National Bank in Winston-Salem, North Carolina, the firm became prominent as LegacyWachovia Corporation. In 1893,Wachovia Loan and Trustwas established. It latermerged with LegacyWachovia Corporation in 1911 with headquarters at Winston-Salem...

Wachovia's Entry into Subprime Mortgage Market President and CEO Kennedy Thompson (Ken Thompson), during 2006, attempted to make Wachovia the biggest financial institution offering diversified services.Allured by multiplying revenues in the mortgage business, he made an untimely decision of acquiring a big mortgage lender to become a leader in the US mortgage market. At a time when all existingmortgage-lending organisations were struggling for survival in October 2006,Wachovia acquired the secondlargest savings bank and the so called 'crown jewel' inmortgage lending business, GoldenWest Financial Corporation (GWFC)5 , based in Oakland, California for $25.5 billion...

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Final Strife in the Financial Waterloo By the end of June 2008, the so-called differed interest or negative amortisation on PAP loans touched the $3.9 billion mark. As the borrowers were in a state of extreme distress,Wachovia had to write off more than 5%of the $122 billion worth mortgage loans inherited from Gold West acquisition. Approximately 12% loss amounting to $14 billion was expected out of theseARM loans.All these circumstances forced a downfall in the annual net income ofWachovia approximately by 20% from $7,791 million in 2006 to $6,312 million in 2007....

Thundering Invasion by Wells Fargo In an unforeseen major twist in early October 2008, Wells Fargo declared its plan of $15.1 billion merger with Wachovia, stunning the financialmarkets and embarrassing FDIC.Wachovia too announced selling of its entire stakes to Wells Fargo, including its debts in an 'all-stock-deal' without any governmental involvement. When Wells Fargo forwarded a fully authorised written and Board-approved proposal to buy Wachovia, the latter's Board immediately approved the proposal to merge. These unexpected events led to a legal battle between the two competitors, Citigroup and Wells Fargo for control over Wachovia...

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