The 2008 financial crisis witnessed how fragile financial institutions and the whole financial system could be. In the U.S., lots of banks touched the edge of failure, requiring extensive assistance from the government. Some received bailouts in forms of capital injection or loss sharing agreement, while others entered shotgun marriage with healthier financial institutions arranged by Federal Deposit Insurance Corporation (FDIC). Among banks that received the latter treatment was Wachovia, the fourth largest U.S. bank holding company by assets back in September 20081.
The eventual sale of Wachovia to Wells Fargo, like other deals in crisis time, proceeded from an extremely complicated negotiation process. What is particularly interesting about this case is that FDIC initially chose Citigroup over Wells Fargo as the buyer, but eventually onboard with Wells Fargo when the latter returned to the negotiation table. This paper will examine how FDIC, the matchmaker for deals involving distressed banks, influenced the negotiation dynamics of the Wachovia deal. On the top of FDIC’s influence, some other governmental actions crucial to the transaction would also be reviewed. More specifically, the paper will analyze how the government and FDIC contributed to Wachovia’s diminishing negotiation leverage, Citi’s unyielding attitude, and Wells Fargo’s unexpected comeback.
Wachovia’s Diminishing Leverage
Like many of its banking peers, Wachovia had been suffering billions of losses following the subprime crisis of the U.S. in 2007. After the failure of Lehman Brother, Wachovia became increasingly anxious about its ill-equipped position against adversity, and included merger in its contingency planning. It soon initiated merger talks with s...
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...ax Change Helps Wells Fargo Acquire Wachovia." Calculated Risk: IRS Tax Change Helps Wells Fargo Acquire Wachovia. N.p., 3 Oct. 2008. Web. 20 Apr. 2014. .
11. Binyamin, Appelbaum. "After Change In Tax Law, Wells Fargo Swoops In." The Washington Post 4 Oct. 2008. A1
12. Phinisee, Tamarind. "FDIC flip-flop altered Wachovia's fate, court records show - San Antonio Business Journal." Widgets RSS. N.p., 19 Oct. 2008. Web. 20 Apr. 2014. .
13. Subramanian, Guhan, and Nithyasri Sharma. "Citigroup-Wachovia-Wells Fargo." Harvard Law School (): n. pag. Print.
14. Davidoff, Steven M.. Gods at war: shotgun takeovers, government by deal, and the private equity implosion. Hoboken, N.J.: John Wiley & Sons, 2009. Print.
The Savings and Loans Crisis of the 1980’s and early 90’s created the greatest banking collapse since the Great Depression in 1929. Over half the S & L’s failed, along with the FSLIC fund that was created to insure their deposits.
One year ago, on September 8, 2016 the Consumer Financial Protection Bureau(CFPB), the Los Angeles City Attorney and the Office of the Comptroller of the Currency (OCC) fined Wells Fargo Bank $185 million, alleging that more than 2 million bank accounts or credit cards were opened or applied for without customers' knowledge or permission between May 2011 and July 2015. This essay will discuss the Wells Fargo scandal by explaining how the event happened and describing how the organization approached handling a response to the crisis. This will be seen, firstly by describing the how the scandal happened, and what were the causes, secondly by discussing the reaction of the company in front of the situation, how they dealt with the crisis and then
The late 19th century and early 20th century was the age of big businesses. It bore a class of entrepreneurs known as robber barons. These entrepreneurs carry a perception in the eyes of most historical commentators that they committed veiled larceny acts to enrich themselves to the detriment of the customers, often seeking the aid of politicians to support their crony capitalist endeavors. Such portrayal by the historians lives us with the picture of greedy and exploitative capitalists. However, there are cases where this ‘robber baron’ string of entrepreneurs did indeed exploit their customers financial gain. Jay Cooke, famously known as the ‘financier of the Civil War’, was an example of this string of entrepreneurs and their reaches within the United States government.
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
The Dodd-Frank Wall Street Reform and Consumer Protection Act’s policies haven’t really been implemented to the extent that regulators would have liked. Although the legislation takes many steps in addressing systematic risks in the United States financial system and improving coordination among regulators, some critics believe that alternative options might have been more effective. The coming years will give us a better understanding of how well the Dodd-Frank Act addressed these concerns.
For this project, we researched Wells Fargo?s performance in the last couple of years as a way to check on its progress to greatness. What we found was an overwhelmingly charismatic company that not only puts down its values in ink, but also strictly abides by them. Much to our surprise, a huge chunk of their thick annual report for 2002 was an honest listing of all the threatening factors that stand in the company?s way rather than its exceptional rankings in its sector. In this paper, we will focus specifically on Wells Fargo?s leadership, company culture, SWOT analysis, and financial performance analysis. We will try to link our findings to Jim Collins?s book as a way to prove that the company has really made the jump from good to great.
Every few years, countries experience an economic decline which is commonly referred to as a recession. In recent years the U.S. has been faced with overcoming the most devastating global economic hardships since the Great Depression. This period “a period of declining GDP, accompanied by lower real income and higher unemployment” has been referred to as the Great Recession (McConnell, 2012 p.G-30). This paper will cover the issues which led to the recession, discuss the strategies taken by the Government and Federal Reserve to alleviate the crisis, and look at the future outlook of the U.S. economy. By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession.
Between January 2008 and February 2010, employment fell by 8.8 million, the largest decline in American history. The 2008 Recession, which officially lasted from December 2007 to June 2009, began with the bursting of an 8 trillion dollar housing bubble. Job losses during the recession meant that family incomes dropped, poverty rose, and people all over the country were suffering. Things like this don’t just happen. Policy changes incorporated with the economy are often a major factor. In this case, all roads lead to one major problem: Deregulation. Deregulation originating from the Carter and Regan Administrations, combined with a decrease in consumer spending, and the subprime mortgage bubble all led up to the major recession of 2008.
The Federal Deposit Insurance Corporation (FDIC) was created in 1933 as an independent agency to provide assurance to banking customers of the availability of their funds in the event of a failure (Federal Deposit Insurance Corporation, n.d.). This student worked as a contractor in a main office of this organization. As a part of her duties, she attended meetings with FDIC employees in which the health of the banking institutions were examined closely. The FDIC worked closely with the chartering institutions to determine which banks needed to be taken over before they failed.
Banks failed due to unpaid loans and bank runs. Just a few years after the crash, more than 5,000 banks closed.... ... middle of paper ... ... Print.
In October of 1929, the American economy took a huge hit from the stock market crash. Since so much people had invested their money and time in the banks, when the banks closed many had lost all of their money and were in the deep poverty. Because of this, one of my first actions of the New Deal was the Federal Deposit Insurance Corporation (FDIC). Every bank in the United States had to abide by this rule. This banking program I launched not only ensured the safety and protection of deposits made my users of banks, but had also restored America’s faith in banks, causing people to once again use banks which contributed in enriching the economy. Another legislation I was determined to get passed...
The mortgage and banking industries have always been very competitive. (In York County alone, there are 275 banking and lending institutions.) The historically low intere...
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
Mortgage loans are a substantial form of revenue for the financial industry. Mortgage loans generate billions of dollars in the financial industry. It is no secret that companies have the ability to make a lot of money by offering a variety of mortgage loan products. The problem was not mortgage loans but that mortgage companies were using unethical behavior to get consumer mortgage loans approved. Unfortunately, the Countrywide Financial case was not an isolated case. Many top name mortgage companies have been guilty of unethical behavior. Just as the American housing market was starting to recover from its worst battering since the Great Depression, a new scandal, an epidemic of flawed or fraudulent mortgage documents, threatens to send not just the housing market but the entire economy back into a tailspin (Nation, 2010).
For example, two of the goals set for 2015 were to “deliver modest positive operating leverage on our core expense base and significantly reduce the drag on earnings due to legal and repositioning costs” (Citigroup, 2016, p.2). Revenues increased by 3% and core operating expenses remained flat. Moreover, Citi’s net income reflects strong earnings for a company that lower headcount, created a more focused footprint and changed its mix of businesses and assets (Citigroup, 2016). It is important to note, that within the financial services industry, many banks have struggled to comeback from the financial crisis in 2008- 2009. Citi’s financial statements is evidence of its efforts to regain momentum despite the negative impact of its Banamex scandal.