Ex-Wachovia Chief Steel Says Bair Sought to Avert Systemic Risk

Former Wachovia Corp. Chief Executive Officer Robert Steel told a panel probing the bank’s near-collapse in 2008 he was ordered by the Federal Deposit Insurance Corp. to head off a meltdown of the banking system by selling his company.

FDIC Chairman Sheila Bair informed Steel on Sept. 28, 2008, that “Wachovia’s situation posed a systemic risk” and that he should begin talks with Citigroup Inc., Steel said in testimony prepared for today’s hearing before the Financial Crisis Inquiry Commission. Citigroup then made an offer supported by a loss- sharing agreement with the FDIC, only to be trumped within days when Wells Fargo & Co. bid more for Wachovia without U.S. aid.

The hearings in Washington are examining events during the financial crisis and the government’s decision to salvage firms such as Wachovia and American International Group Inc., while leaving others such as Lehman Brothers Holdings Inc. to collapse. Former Lehman CEO Richard Fuld is scheduled to testify today, while Federal Reserve Chairman Ben S. Bernanke and Bair are slated to speak tomorrow.

“The government had deemed Wachovia too big to fail; Lehman fell into a different bucket and we have lots of questions why,” said Tucker Warren, a spokesman for the commission.

Steel, the former U.S. Treasury Department and Goldman Sachs Group Inc. executive, was brought in to lead Charlotte, North Carolina-based Wachovia in 2008 as the lender struggled to recover from the aftermath of its $24 billion purchase of Golden West Financial Corp. The deal saddled Wachovia with about $120 billion of adjustable-rate mortgages that allowed borrowers to skip some interest payments and add them to the loan balance.

Source : http://www.bloomberg.com/news/2010-09-01/former-wachovia-chief-steel-says-fdic-s-bair-sought-to-avert-systemic-risk.html