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Correction to This Article
This article misspelled the name of Sam Schreiber, mid-Atlantic regional president for Wachovia.
A New Equation in Local Banking
Citi-Wachovia Deal to Put a Quarter of Area's Deposits Under One Roof

By Thomas Heath and Alejandro Lazo
Washington Post Staff Writers
Tuesday, September 30, 2008

The merger yesterday of Wachovia and Citigroup combines two of metropolitan Washington's largest banks, creating a potential powerhouse accounting for nearly a quarter of the region's deposits.

Wachovia was the region's largest bank, with $20.8 billion in deposits in 2007, and its combination with Citi, the seventh-largest, left local community banks taking stock of their own role in the marketplace.

"It's been a tough day for us and for our employees, but a day we are focused on doing what we normally do," said Sam Schneider, Wachovia's mid-Atlantic regional president. "We are talking to our clients extensively . . . We are open for business. Their deposits are safe. Their credit lines are available."

Schneider said it was too soon to gauge the effect that the merger would have on the banks' Washington-area employees. He declined to comment on whether any branches would close, saying it was too early in the process, but noted that there were relatively few places in the region where the two institutions compete head to head.

"There is very little overlap, if any, in this marketplace for what we do versus what Citi would like to do," Schneider said.

Wachovia and Citi have a total of about 450 branches in Maryland, Virginia and the District.

Some local bankers said the merger of two national players could be an advantage for smaller institutions that base their appeal on being community banks.

As national franchises, Wachovia and Citi probably are "not looking to expand their small to mid-size local customer relationships like community banks are," said Ronald D. Paul, chairman of EagleBank, a Bethesda-based bank with $1.5 billion in assets and 15 branches.

Peter Converse, president of Virginia Commerce Bank, which is based in Arlington and has $2.6 billion in assets and 26 branches, was more circumspect, aware that a blizzard of bad news can frighten customers.

"It's a dual-edged sword," Converse said. "On the one hand, it creates customer paranoia that works to the advantage of community banks. On the other hand, a bank that large having that significant difficulties and the need to be taken over overnight just fans the paranoia nationwide about the safety of existing banks. It creates a lot of hand holding that banks have to do with their customers to assure them their deposits are safe."

Robert L. Johnson, chairman and chief executive of RLJ Cos. and president of Urban Trust Bank was also looking at the big picture.

"If solving Wachovia by basically having Citi or somebody ultimately take it over helps wipe its slate clean of bad assets and gets banks into the marketplace . . . that's the key issue for me," said Johnson, who also runs a private-equity arm.

Wachovia was the fifth-largest bank in the United States when the Federal Deposit Insurance Corp. orchestrated its takeover by Citi. The deal followed last week's collapse of Washington Mutual, which was acquired by J.P. Morgan Chase.

The takeover by Citi came on a tumultuous day for the stock market, when news that Congress had failed to pass a bailout sent the Dow Jones industrial average down 7 percent.

EagleBank shares dropped 2.8 percent, while Virginia Commerce shares fell 7 percent.

Peter Fitzgerald, chairman of ChainBridge Bank in McLean, said his bank, which opened in August 2007, has benefited from the turmoil as larger banks sort out their problem loans.

"Wachovia, like other banks in this area, will be trying to shed unprofitable loans from their books and they will try to keep their best loans and get higher rates on them," said Fitzgerald, a former U.S. senator from Illinois.

Paul, of EagleBank, said his bank has seen a surge in requests for loans during the last few months as regional and national banks decline to renew smaller loans and lines of credit.

"The big banks are looking to clean up their balance sheets as best they can," Paul said. "The smaller loans are much more difficult to manage. Therefore, the big banks would rather deal with larger loans than smaller loans."

However, one difficulty for small banks like EagleBank is attracting depositors and ensuring there is enough liquidity to make loans. He wants the FDIC to dramatically increase its insurance on savings deposits from the current limit of $100,000 per depositor, in hopes that will encourage customers to deposit more.

"It's really Congress' call to do that," said Sheila Bair, chairman of the Federal Deposit Insurance Corp. She said the FDIC last sought an increase in 2005 but was turned down.

In the meantime, some customers are nervous.

Over the weekend, Terri Turner, 37, a resident of Frederick County, transferred three-quarters of the money in her Wachovia account to her husband's Bank of America account, leaving only about $500 at Wachovia.

"I did not want to be part of a run on the bank or anything like that, but we did not know if there was going to be a buyout or a government takeover and, you know, I was just being cautious. I want to be able to pay my mortgage," Turner said on Monday, after withdrawing some cash from a downtown District Wachovia branch. "I still have my direct deposit here, so we will see. It is a shame."

For Katie Ellsworth of the District, the news that Citigroup had bought Wachovia and that Congress had failed to pass a bailout gave her pause.

"Should I take more money than I need out?" she said she asked herself after hearing the news. She had gone to the Wachovia bank branch at 1310 G Street NW in the District, just to take out a nominal sum, but found herself asking the tellers there if she should remove all of her deposits and put them in another bank.

"They said 'absolutely not,' and they laughed," Ellsworth said. Ultimately, she decided to keep her money with Wachovia, despite not being enamored by the bank's new owner. "I am not a fan of Citibank. I am not a big fan of any of these massive banks that control everything."

Staff writer Binyamin Appelbaum contributed to this story.

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