Decline of Wachovia weighs on Triad

One hundred billion dollars. That's with a B.

That's the estimate, according to economists, of the wealth that's disappeared from the Carolinas because of the collapse of Wachovia Corp., whose shareholders are voting today on a takeover by Wells Fargo & Co.

Since the shotgun merger to Wells Fargo was announced in early October, the stock has been valued at $5 to $6 a share, compared with a high of $57 in 2006.

"As an old-line, legacy North Carolina company, it's really difficult to find North Carolina investors who didn't have a significant piece of their wealth in Wachovia's stock," said Tony Plath, a finance professor at UNC Charlotte.

"It's taken a severe toll on retirement savings plans, 401(k) investment resources, college-savings plans, mutual-fund shares for North Carolina investors.

"In addition, it's completely wiped out the retirement savings of many current and former Wachovia employees, especially people with options in the bank's stock at exercise prices ranging from $22 to $36 a share," Plath said. "They're totally worthless."

Barring an unforeseen "no" vote on the Wells Fargo offer from institutional shareholders, Wachovia will cease to exist by Dec. 31, and the clock will begin ticking louder on the fate of 2,900 local Wachovia employees.

But it's not just Wachovia executives and well-to-do institutional investors that are taking a severe blow.

It's your neighbors and the institutions they support: churches, schools, nonprofits, and foundations. It's also residents and potential residents of local retirement and nursing homes, and those retirees wanting to remain in their own home.

They all are paying a price for the mistakes of Wachovia's management over the past 2½ years, best exemplified by the $25 billion deal for Golden West Financial Corp.

"Winston-Salem people, by and large, tend to want to stay in Winston-Salem when they retire and go into the local retirement community that they can afford," said John Ferguson, the mayor of Bermuda Run and a board member for Salemtowne Continuing Care Retirement Community in Winston-Salem.

"Many people were able to do that because they held Wachovia stock, which many people felt for years was as safe as a U.S. Treasury note," Ferguson said. "With the decline in the stock's value, there will be fewer people able to do that as they approach retirement age."

Wachovia shareholders were a loyal bunch, backing the bank through financial crises, including the Great Depression. They kept, and probably even added to, their shares in Wachovia even after its stunning sale to First Union.

As a result, many residents have depended on the blue-chip status of Wachovia's stock for donations to meet annual budgets, for shares to use as collateral to buy a home, or to join a country club.

Wachovia also pumped out dividends large and dependable enough to provide an affordable retirement for some employees and investors, as well as gifts to their community of faith or charities.

Now, with the share price down 85 percent and the quarterly dividend cut from 64 cents in January to 5 cents in July, most nonprofits and groups dependent on disposable income are tightening budgets for 2009 and, in some cases, eliminating jobs.

Scott Wierman, the director of the Winston-Salem Foundation, said that the group has "seen significantly fewer gifts of Wachovia stock this year."

The foundation, like many nonprofits and churches, gets a considerable amount of its money each year from people who donate appreciated stock -- stock that gains in value over the year.

The benefit to the donor, besides the feel-good contribution to a charity or their community of faith, is a credit against their tax liabilities for the year.

"We've seen 50 fewer individual stock gifts overall from Jan. 1 through the first week of December than we did last year, which is several million dollars in value," Wierman said.

Some residents worry about how they or their parents will be able to afford to remain independent -- even in good health -- with their Wachovia portfolio nearly wiped out.

Allen Dyer of Wilkesboro said on a blog where Wachovia shareholders commiserate about their losses that the bank's collapse cost him about "six figures" in investments.

"But my primary concern is for my 91-year-old mother who lost virtually the entire nest egg left to her by my father to, in her words, ‘Keep me from having to go to a rest home,'" Dyer said. He said that his mother's home care has been paid for by Wachovia stock and dividends.

"That stock was result of my working-man father's hard-earned savings which he had invested in Northwestern Bank, one of the legacy stocks of Wachovia."

First Union Corp. bought Northwestern Bank, which primarily served Northwest North Carolina, in March 1985.

The overall decline in the stock market has affected charities and religious institutions, with few stocks with local connections trading at last year's prices. Wierman said that if the Wachovia share-price decline was in a vacuum, residents would probably be able to withstand the financial pain.

But because Wachovia has been the preferred local stock to donate for decades, the ramifications of the collapse are likely to be widespread in 2009.

For many elderly people, a year-end stock donation represents the bulk of what they can provide each year to their community of faith.

In turn, because of the tax benefit, December tends to be the month with the largest amount of donations. Some churches get up to 20 percent of their annual budget in the month.

"Like most churches, First Baptist depends on a strong fourth quarter, and especially a strong December, for making up any deficit in our budget," said David Hughes, the pastor of First Baptist Church on Fifth Street. "Naturally, some of the year-end giving consists of proceeds resulting from the sale of stock.

"To the degree that this year the stock market is down significantly in general, and Wachovia stock is down markedly in particular, we anticipate a decrease in giving that result from stock.

"These days, where finances are concerned, we all walk by faith, not by sight -- including churches," Hughes said.

Calvary Baptist Church faces a potential double whammy from the decline in Wachovia's stock value since it also operates Calvary Baptist Day School, which offers K-12 education. The sale of stock is often used to pay private-school tuition, at Calvary and elsewhere.

"We will continually monitor church resources in terms of the economy, and adjusting where needed," said Don Mann, the associate pastor for stewardship at Calvary.

"We believe most worshippers will provide their gifts and offerings to the church, and cut back on other expenses, because they consider their gifts and offerings to the Lord through the church."

Ferguson, the board member of Salemtowne, said he believes that most area retirement developments are concerned about slowing demand for their units.

"With the current state of the general economy, people are just reluctant to go out on a limb to make any kind of commitment, and that includes retirement communities," Ferguson said. "Many potential residents are having trouble selling their current home."

Joe Lydon, the president of Salemtowne, said that the retirement community provides about $800,000 in financial assistance annually to residents who have outlived their financial resources.

"The economy isn't a factor on our current ready list," Lydon said. "But we are not getting the investment income that we're used to, so we have put into place limits on overtime and a hiring freeze to reduce our expenses as a community."

Wierman said that there is growing concern among local nonprofits, particularly those that assist people struggling financially, that their resources could run short.

"There will be people asking for help that never have had to in the past," Wierman said. "They have been laid off this year and their money will run out in 2009 unless they are able to find work.

"That means more people may be donating or contributing less to charities."

■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.