Legal

Wells Fargo To Acquire Wachovia

Scrapping a federally-backed deal with Citigroup Inc. (C), Wachovia Corp. (WB) announced early Friday that it would instead accept an offer from Wells Fargo & Co. (WFC) for the entire company sans any government intervention. The deal is worth approximately $15.1 billion, and involves an offer of $7.00 per Wachovia common share — well above Thursday’s $3.91 closing price. As part of the deal, Wells Fargo will raise $20 billion in capital, primarily via an offering of common stock, to offset what the company said it expects to be roughly $10 billion in acquisition and integration costs. Wachovia shares surged 66 percent premarket to $6.50, while Wells Fargo rose 1 percent to $35.50 and Citigroup fell 11 percent to $19.99. See the Wells Fargo statement. Wachovia officials said in a separate statement that Wells Fargo had presented a signed and board-approved offer late Thursday, and that the bank’s own board consented to the new offer yesterday as well. The new deal means that Wells will acquire all of Wachovia Corporation and all its businesses and obligations, including its preferred equity and indebtedness, and all its banking deposits. Prior to the Wells offer, Wachovia had been negotiating with Citigroup to complete a transaction supervised by the Federal Deposit Insurance Corp. that included assistance from the government, and only involved Wachovia’s banking operations. See earlier coverage. The new deal instantly makes Wells Fargo the largest bank in the nation by deposits, with $787 billion in combined deposits; the combined bank will hold $14.2 trillion in assets and employ 280,000. Executives at Wells suggested strongly that they would seek to retain Wachovia’s employees. “We are combining the industry’s number one ranking customer service culture of Wachovia with the industry’s number one sales and cross-selling culture of Wells Fargo,” said Wells Fargo chairman Dick Kovacevich. “We want to assure [Wachovia employees] we’ll do everything we can to make the integration of our operations as smooth as possible,” said Wells Fargo president and CEO John Stumpf, in a press statement. “An important measure of success for this integration will be our ability to retain as many of the talented Wachovia team members as possible so they can continue to provide outstanding service and financial advice to their customers and continue their careers with Wells Fargo.” Wachovia faced an uncertain future after the failure of Washington Mutual (WM) last week, and regulators quicky arranged an FDIC-supported deal that would sell the North Carolina-based bank’s core banking franchise to Citi with the government backstopping losses tied to a core portfolio of troubled loans. Option ARMs constitute $122.2 billion of Wachovia’s $488.2 billion in total loans; no other U.S. bank has as much exposure to option ARMs in real-dollar terms. Those loans will become Wells Fargo’s problem under this deal; Wells, for its part, has its own substantial $84 billion portfolio of home equity loans, half of which are located in hard hit states like California and Florida. Wells officials said they will record Wachovia’s credit-impaired assets at fair value, as part of the acquisition, and that they expect the Wachovia deal to to add to earnings this year. “As always, we only consider acquisitions that add to earnings per share no later than the third year after purchase and earn an internal rate of return of at least 15 percent,” said CFO Howard Atkins. Credit rating agencies had not yet commented on the deal’s effect on either Wachovia, Wells Fargo, or Citigroup at the time this story was published. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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