Wachovia was established in 2000 through the merger of First Union and the predecessor Wachovia Corporation. A series of mergers and acquisitions developed the basis of what the company is today. Recent transactions provided the firm with an increasing market share along the south-eastern United States. Before 2005, the company was known throughout the east coast as a premier commercial bank that focused on middle-market and small business banking. In 2006, the company acquired Golden West Financial and Westcorp is entering the west coast banking environment which has been predominantly served by Bank of America and Wells Fargo. In 2007, Wachovia also completed its acquisition of A.G. Edwards & Sons, Inc.
Wachovia's revenues are well diversified among its 4 key businesses:
With a presence in 21 states, Wachovia focuses on individuals, governmental agencies, small businesses, and commercial entities. Mortgage services are sold in 50 states, and auto financing is offered in 46 states. Small businesses have been a particular strong point in the company's recent financial press release. The bank provides a individualized level of service depending on a client's revenue.
Commercial banks typically make money by paying depositors a lower interest rate than they charge on the mortgages that they fund through their deposits. This becomes increasingly difficult in the current environment, in which short term interest rates are higher than long term interest rates.
Wachovia provides financial advisory services to high-net-worth clients, families, and enterprises. The company also provides insurance services which include risk management, employee benefits, and corporate insurance plans.
Capital raising, mergers and acquisitions advisory services are among the specialties offered in this division. The firm specializes in advising private equity shops, hedge funds, and other firms in the financial services sector. The Corporate & Investment Bank also engages in investments in start-up firms, asset-based lending, as well as cash-holding services to its clients among other offerings.
Investment retirement plan and brokerage services are provided under this arm of the Wachovia Corporation. With offices in 47 states and in Latin America, the firm is poised to take advantage of its strong asset management team based in Evergreen Investments. The asset management team focuses on institutions, endowments, as well as advising pension funds.
Loan defaults, particularly in the subprime market have increased dramatically in recent months. As interest rates rose many borrowers find themselves at the mercy of their once low adjustable rate mortgages. Moreover, higher interest rates raise the cost of borrowing for all lenders, dampening overall demand for mortgages and other home loan products.
Typically banks charge higher interest rates on loans which qualify as long term debt than they they pay on deposits (short term debt). With the yield curve inverted, long-term rates are lower than short-term rates, making deposit accounts left profitable.
Domestically, Wachovia has a strong presence on the east coast, and with the recent acquisitions on the west coast, it will enter California, Arizona, Nevada, Colorado, and Texas.
The firm has made strong progress in entering the Latin American markets which has seen very strong growth in the real Gross Domestic Product in the past couple of years.
Mobile Banking: Banks across the industry have made progress into mobile banking issues. In 2006, the major banks including J P Morgan Chase (JPM), Citigroup, and Commerz Bank launched a campaign to open as many ATMs as possible. The idea of convenience is extended to a new level by phone-based mobile banking. Basic services like account management and fund transfers are among the possible options for mobile banking. Most importantly, it represents an outlet for those lacking bank accounts, are undocumented, and poor.
Remittances: With Bank of America (BAC) taking the first move into the remittances market, competitors and start-ups are taking small steps into the industry. At present, this segment represents a significant source of untapped revenue with very little competition.
The major players in Wachovia's league are Citigroup (C), Bank of America (BAC), and SunTrust Banks (STI) These firms typically operate in a business model that gradually introduces clients to complex financial services and solutions as the client matures. In this way, these banking firms try to cater to the client's entire life span by offering as many products as possible. For this reason some have identified this strategy as building "banking supermarkets."
|Domestic Deposit Market Share (%)|
|Bank of America (BAC)||8.21||10||9.54||10.36||10.07|
|J P Morgan Chase (JPM)||6.23||7.4||7.49||7.07||4.18|
|Wells Fargo (WFC)||3.56||4.2||5.20||4.69||4.90|