Banks Perform Vanishing Act

(bettertrades) - Banking ghosts Wachovia and National City will effectively disappear after shareholders vote to approve their sales today. Although the brand names could temporarily remain while folding into new parent companies, the disappearing act in Charlotte and Cleveland will not be an illusion.

Following the collapse of Lehman Brothers in September of 2008, the panic of systemic risk and its resultant snowball effect has forever changed the landscape of the U.S. banking universe.

On October 12th, the Federal Reserve approved San Francisco based Wells Fargo's acquisition of Wachovia for $15.1 billion in stock. Wachovia's 2006 purchase of mortgage lender Golden West Financial effectively ended the Charlotte bank's viability, exposing themselves to toxic CDOs and CMOs.

Founded in 1845, National City was forced to sell itself to PNC for $5.2 billion in stock, massively undervaluing the asset base of the Cleveland-based bank. Several major stakeholders of National City have filed a lawsuit accusing Federal regulators of cherry picking PNC for survival and National City for deletion.

The financial sector has been a large source of the rise in unemployment heading into 2009. On December 5th, the Labor Department reported unemployment climbed to 6.7% during November on the shoulders of a 533,000 increase in job losses. On the 22nd of December, Challenger, Gray & Christmas estimated the loss in private sector jobs could amount to 1 million next year.

Municipalities and state-wide governments are increasingly finding themselves falling short on revenues for the fiscal year. The shock to the Charlotte area could be extremely damaging. Wells Fargo outbid Citigroup for the failing North Carolina bank and will likely clean house to bring its west-coast style of management to Charlotte.

While the impact on Charlotte could be substantial, Cleveland's financial crisis is multiplying at an exponential rate. Already reeling from massive foreclosures and rising unemployment, the Ohio area will face mounting difficulties absorbing additional job losses. Fortunately for Charlotte, the area has been resistant to the bursting real estate bubble. The same cannot be said for Cleveland.

This scenario is playing out across the country. Wachovia's former Charlotte-based arch-rival, Bank of America, is in the process of digesting Countrywide Financial in addition to Merrill Lynch. BoA has already stated plans to implement a 30k to 35k reduction in its workforce by 2011. JPMorgan is in the process of deciding whom to liquidate at Bear Stearns and Washington Mutual.

Will regional banks fill the void as more national institutions fall by the wayside? Are foreign acquisitions on route like Banco Santander's purchase of Sovereign? For certain, the vanishing act banks are performing will leave major U.S. cities mystified.