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A Lightning Rod: Stunned former CEO defends his deal
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Bud Baker, the former CEO of Wachovia, said that 'the folks who inherited the bank' didn't follow the lower-risk goals of the sale.
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Published: October 1, 2008
Bud Baker knows that a lot of local fingers are being pointed in his direction these days.
Like Wachovia employees, other retirees, shareholders and local officials, Baker said yesterday that he was stunned by the swift collapse of the bank and the inglorious need for a U.S. government-brokered deal with Citigroup Inc. for $2.1 billion and $95 billion in assumed debt and loan losses.
Baker said in rare public comments on the First Union deal that he accepts being the lightning rod for local discontent and frustration. As the former chairman and chief executive of Wachovia, Baker was the architect of the $14.6 billion deal that sold the conservative Winston-Salem bank to risk-taking First Union Corp. in September 2001.
Without that deal, analysts said, the former Wachovia, as it existed before the First Union deal, likely would not have been a major participant in alternative home loans the past four years. Baker said that the former Wachovia would not have bought Golden West Financial Corp., which held a portfolio of exotic mortgages toxic enough to bring Wachovia to its knees.
"If it makes people feel better to have someone to blame, blame me," he said.
Baker still defends the deal as the right move for Wachovia when it needed to provide a higher return to shareholders, many of whom either worked for, retired from or were local investors in the bank.
"The deal was going to generate a 12 percent growth rate well into the future without an exorbitant amount of risk," Baker said.
"The folks who inherited the bank didn't do that," he said, referring to keeping the lower-risk goals.
With First Union's management in charge of the merged bank, Wachovia went on a buying spree that Vernon Hill, an analyst with Bankstocks.com, described as "a case of executive myopia, where management's priorities (and responsibilities) were subordinated in favor of the relentless pursuit of size."
The Golden West deal "didn't just cost shareholders a large portion of their stake in the company, it evaporated it altogether," Hill said.
John Medlin, the CEO of Wachovia before Baker, told The Charlotte Observer that Wachovia "didn't deserve to go down."
"It had a very viable and strong retail, commercial-banking and wealth-management operation," Medlin said. "It could have worked its way out of the Golden West losses over time. I think Bob Steel was on the right track. The marketplace just didn't give it a chance to survive."
Winston-Salem paid a stiff price for the First Union deal, including the elimination of 1,300 local jobs and the loss of the Wachovia headquarters.
But the fallout from the takeover of Wachovia by Citigroup could be much grimmer.
Although local officials plan to pitch the lower-cost benefit of having operations here, analysts have said that the local community may be fortunate to keep a small percentage of the 3,000- person work force.
Another target of local criticism of Baker is the $1.5 million annual retirement package he received for life from the merged bank. He did turn down a proposed $500,000 increase in his retirement compensation after accusations by some shareholders that the deal with First Union was partly motivated by a more attractive pension package.
Baker said he expects that the local community will take little solace from his sense of regret over Wachovia's demise.
"My heart goes out to the people who have been affected financially and with their jobs from this end to Wachovia," he said. "It goes out to those true Wachovians, who held onto the stock because they thought it would be a good value forever. I still believe (the First Union deal) was a brilliant strategic move that ultimately failed."
Baker also vented his own frustration at the failure -- so far -- of Congress to pass the $700 billion bailout of the financial system and the "silliness of political posturing."
"It's possible Wachovia might have been able to hold on" if a bailout had been passed before Friday, he said.
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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