Wachovia may have to sell remaining units too

NEW YORK (Reuters) - Wachovia Corp WB.N may have to sell its large brokerage and other businesses that are still standing after a U.S. government-brokered sale of its banking operations to rival Citigroup Inc (C.N).

As part of the deal on Monday, Wachovia plans to remain a public company and retain asset management unit Evergreen Investments, brokerage Wachovia Securities, and insurance brokerage Wachovia Insurance Services.

But the company that will emerge from what was once the sixth-largest U.S. bank by assets may find it tough going on its own, experts said.

"Is it a viable standalone company? Yes. Is it likely to stay an independent company indefinitely? No," said Robert Ellis, an analyst at financial research firm Celent. "If everyone else is moving to the universal bank model, it is not going to have the wherewithal to compete."

A Wachovia spokeswoman said the company "will be a focused leader in retail brokerage and asset management."

Ellis said potential buyers could include foreign banks such as HSBC Holdings PLC (HSBA.L) and Banco Santander SA (SANB4.SA), which may want to build their U.S. presence.

CreditSights said in a report JPMorgan Chase & Co (JPM.N), which is interested in expanding its retail brokerage presence, may want to look as well, although after its acquisition of Washington Mutual Inc last week it was unlikely to do any more deals before next year.

Private equity has been active in the asset management space, including Monday's deal for Lehman Brothers Holdings Inc's (LEHMQ.PK) Neuberger Berman unit, and could look at some businesses as well.

UBS analysts estimated that Wachovia Securities and asset management business could be worth between $10 billion and $21 billion, depending on assumptions about the price-to-earnings multiples used.

But Wachovia's shares dropped more than 81 percent to $1.84 on Monday. Its market value fell to about $4 billion, even less than the roughly $6.6 billion the bank paid for A.G. Edwards last year.

In a research note titled, "Wow, where to begin?" Stifel Nicolaus analysts said there was not enough information, such as details about corporate expenses and debt, to determine how profitable the remaining company would be.

"This is hard to determine because we just don't have all the pieces of the puzzle yet," they wrote.

WATCHING CLOSELY

Investment bankers have been watching the Wachovia situation unfold with interest.

"We have looked at Evergreen pretty closely. We are certainly keeping it in mind for any of our clients," said a financial service banker who did not want to identified because he was not authorized to speak to the media.

Evergreen, which employs more than 350 investment professionals, oversaw $72.7 billion of equity assets, $108.6 billion in fixed income and $64.6 billion in the money market as of June 30.

Evergreen could be worth about $1 billion to $2 billion, but the list of potential buyers was likely to be small, he said.

"It is tough to find someone to come in and take that over, with a large fixed income asset base," the banker said. "It's basically a big consolidating mutual fund deal.

Wachovia Securities, which is the third-largest U.S. brokerage and is minority owned by Prudential Financial Inc (PRU.N), may attract more buyers, the banker said.

Wachovia Securities, which includes the former A.G. Edwards, has some 14,600 financial advisers and posted revenue of $6.7 billion in 2007.

"That's a pretty vast brokerage distribution network," the banker said. "There are a lot of folks that would value that."

END GAME

Wachovia could still forge ahead with a future based on the businesses that are left.

For some the association with Wachovia had been a distraction due to the recent problems at the bank, said an A.G. Edwards adviser who did not want to be identified because he was not authorized to speak to the media.

"All we heard for the last year-plus is that we need a universal bank model," the adviser said. "The positive out of this is that A.G. Edwards never wanted to be part of a bank and will not in the future," he said.

Mike McKeon, an analyst at Booz & Co, said the deal could be the start of a retail and institutional securities firm.

"They will be able to raise capital," McKeon said. "They may choose to buy a small bank."

But others said they would not be surprised to see the remaining Wachovia businesses being sold as well, and that may happen soon.

"We are in the end game. I think the bargains are only going to be bargains for maybe another month or couple of months," Ellis said. "It would have to be sooner than later."

(Editing by Bernard Orr)

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