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Faithful Wachovia investors feel betrayed
Journal Photo by Lauren Carroll
John Sneden, in his home in Winston-Salem, talks about his Wachovia shares, which he inherited years ago, losing about $150,000 in value in the past year.
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Published: October 5, 2008
Anger and elation. Frustration and relief. Betrayal and hope.
S.P. Blankenship Jr., 70, a proud "Wachovian" for decades, has bounced back and forth through those emotions, and many more, in the past seven days.
It has been a most tumultuous week, with Wachovia Corp. needing federal intervention to prevent a total collapse, and two banks emerging with fire-sale offers.
There are likely few people more loyal to Wachovia than Blankenship, a 32-year employee who retired in 1999 as a senior vice president. He still offers his bank business card as identification.
Blankenship said that his sense of relief with Wells Fargo's $14.8 billion offer for Wachovia -- made Friday and aimed at trumping Citigroup Inc.'s $2.2 billion bid -- is muted because of the damage already done to shareholders.
"There are already thousands of Winston-Salem residents who have had, in the aggregate, probably several hundred millions of dollars in personal wealth destroyed this week by one man in Charlotte -- Ken Thompson," Blankenship said of the former Wachovia chairman and chief executive. "I am one of those shareholders."
Blankenship is not alone in lamenting the fall of Wachovia and the 88 percent plunge in the value of its stock in the past year.
Wachovia investors near and far shared their concerns with the Winston-Salem Journal. Whether they had 60 or 6,000 shares of Wachovia, whether they had been investors for decades and generations or buyers in the past year, they said that misery has had too much company for such loyal supporters.
After all, until recently, had there been a steadier, bluer-chip company in North Carolina? they asked.
The bank pumped out dividends large enough and dependable enough to provide an affordable and comfortable retirement for many Wachovia employees and investors.
At least, that's what Albert Daughtridge Jr. of Fort Mill., S.C., thought about his 6,000 shares of Wachovia. The value of those shares has declined by nearly $80,000 since a year ago.
"My stock purchases dated back to the early '70s," Daughtridge said.
"I'll sorely miss the comfortable dividend from what I thought was a conservative investment that I had depended upon for income in retirement. I'll miss much more not at least having any equity to reinvest elsewhere. I'm sure that this is the story of many Carolinians."
John Sneden of Winston-Salem said he got his first Wachovia bank account 48 years ago and never thought about switching. He inherited most of his 3,351 shares of Wachovia, as well as some from First Union Corp., from his parents.
"That grand old Wachovia name has been a rock for its investors," Sneden said. "That's why, even with Wachovia's problems of late, I kept riding out the downturn because I believed the stock would go up, up, up again soon.
"Now, I'm not so sure if I will ever get back to where I was financially."
By Friday's closing price of $6.21 a share, Sneden's shares were worth about $21,000 -- a $150,000 drop from a year ago.
Questionable buy
Wachovia's fate changed dramatically shortly after Thompson persuaded the board of directors to support his decision in October 2006 to acquire a California financial institution -- Golden West Financial Corp. -- that specialized in risky mortgage loans.
Those loans, which have turned toxic in the form of foreclosures and delinquencies in the past two years, are the primary reason that Wachovia desperately sought a buyer.
"I think legacy Wachovia employees, shareholders, retirees and suppliers, without a doubt, would place the blame for this mess on the two previous Wachovia chief executives," said Jon Mack of Lewisville, referring to Thompson and Bud Baker.
"These two men sealed the fate for Wachovia with destructive and irresponsible decisions, beginning in 2001. Perhaps a bit of self-indulgence clouded their judgment to make good decisions for the long-term well-being of Wachovia."
Shareholders said they were glad that Wells Fargo & Co. made its surprising bid for Wachovia.
They said that the $7 a share offer from Wells Fargo is more palatable than a Citigroup bid they consider not only as low ball -- worth $1 a share -- but also a hard punch to their gut.
"I am thrilled. Score one for the shareholders," said Ouida Linkous of Pilot Mountain. Linkous calls herself a small investor in Wachovia, "a little fish caught up in the loyalty thing" even after being an early job cut from the First Union purchase of Wachovia in September 2001.
"Hopefully that West Coast location will save a few more East Coast jobs," Linkous said. "My gut is this is a good thing, but I still am not comfortable enough to loosen up my seat belt."
Longtime loyalty
Local Wachovians have been a loyal bunch, backing the bank through financial crises, including the Great Depression.
They kept, and likely even added to, their shares in Wachovia even after the stunning sale of the bank to First Union. Most feel misled, even lied to, by recent comments expressing Wachovia's financial strength from Thompson, Lanty Smith, his replacement as chairman, and Robert Steel, his replacement as chief executive.
Blankenship said he never dreamed that being so loyal to the homespun bank would end up costing him a big part of the nest egg he had so carefully prepared.
"My speculation is that the emotions that existed about the former management of First Union and their ill-fated acquisition of Golden West are still there out in the community," Blankenship said.
"How about some of the older retirees who kept their Wachovia stock over many, many years, and their widows, as well as some of the younger, current employees of Wachovia who were employees of the original Wachovia.
"All of them may have accumulated Wachovia shares in the last 10 to 12 years at much higher prices than the $7 they will probably receive now," he said.
William Hanson, a former contract employee of Wachovia and former employee of R.J. Reynolds Tobacco Co., said that "the downfall of two great companies in Winston-Salem affected me personally and many friends, who are not fortunate enough to be at an age that can weather early retirement."
"I never expected any of this, as I planned my career by doing the right things.
"The greed that has taken over corporate America is destroying the future for the average working American, while a few rape and pillage as the politicians enable their actions," Hanson said. "The Wall Street bailout is probably the final nail in the coffin for the middle class."
Alan Hardman, a 35-year veteran of Wachovia who retired in 1997, said that the value of his 401(k) account has averaged about $300,000 because it was invested in the Wachovia stock program.
"As I entered my retirement years, I depended on the dividends to assist my cash flow," Hardman said. "Although I was aware of the risk, Wachovia was paying full dividends through the first quarter of 2008 until they severely cut the dividend in the second quarter."
Bad advice
Hardman said that in August, he questioned a Wachovia branch-investment specialist about keeping his 401(k) in the stock program.
"It was suggested to me to wait until the stock rebounded and I was assured Wachovia was OK ...," Hardman said.
"Stockholders were not advised properly of the continued risk, which was a direct result of mismanagement of the bank by its directors and senior management, thus resulting in substantial losses. I feel that a government investigation should be made on the financial reporting."
Linkous said that it "pains me to repeatedly hear the name Wachovia equated with such a colossal failure, when we know First Union simply bought our name and made this mess."
"Shame on those Greenies. They destroyed an incredible legacy and changed the face of a community in a way none of us can even comprehend."
John Meola, a Wachovia shareholder from Raleigh, said that the "sudden evaporation of my $50,000 investment has left me angry and wanting justice."
"I invested in Wachovia because I believed in their fine banking operations and with a good dividend, it was reasonable to hold on to my long-term investment.
"Remember, investors are not traders; we are in it for the long haul. Review the prior chief executive's comments over the past year and you will see why we are so blindsided."
Mack said he holds out hope that a Wells-Fargo-Wachovia franchise would "build value for all local stakeholders that have lost plenty" on paper.
"It should be reassuring to all that Warren Buffett's company -- Berkshire Hathaway -- currently has a 9.2 percent stake in Wells Fargo," Mack said.
But Gene Steady said that even with the higher Wells Fargo offer, at age 58, "a part of my retirement funds will be wiped out."
"I will not be able to recover that loss, and it will negatively impact my financial situation ...," Steady said. "I have worked 6 and 7 days a week for the last 23 years to save and plan for the future.
"Wachovia did not fail, and I think an investigation may be in order."
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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