Better deal for U.S.

[TheTodd]

Wells Fargo is buying Wachovia, all of it, and it won't require US assistance like the Citigroup deal would have. Win Win!

Wachovia Corp. agreed to sell itself to Wells Fargo & Co. in a $15.4 billion takeover that will require no government assistance, scrapping a federally backed deal with Citigroup Inc.

The Wells Fargo offer is for $7 a share in stock, based on Thursday's closing price, 79% above where Wachovia shares finished. Wells Fargo also will assume Wachovia's preferred stock and debt.

In conjunction with the deal, Wells Fargo will issue $20 billion in new securities, mainly common stock. Wachovia shares surged 64% premarket to $6.40 while Wells Fargo rose 1% to $35.50 and Citigroup fell 6% to $21.15.

Under the deal, Wachovia holders will get 0.1991 share of Wells Fargo for each Wachovia share.

The Wachovia/Wells Fargo deal comes four days after Wachovia and Citigroup reached a $2.16 billion agreement in principle to sell its banking operations to Citigroup.

The development is bad for Citigroup, as it highlights weak spots at the New York banking giant and challenges the notion that it has moved solidly from the problem category to the solution camp as the financial crisis unfolds.

Citigroup's move to buy Wachovia's banking operations was widely seen as an effort to shore up its deposit base, which will now look less solid. Also, Wells Fargo is buying all of Wachovia without government help. That makes Citigroup's deal for only part of the company and need for Federal Deposit Insurance Corp. guarantees against losses on some problem loans look relatively paltry.

Ratings agencies warned after the Citigroup deal that they could downgrade the financial services company's debt. They expressed concerns about the poor quality of some of Citigroup's own assets.

A Citigroup spokeswoman wasn't immediately available to comment.

Under the deal, Wells Fargo will acquire all of Wachovia. The Citigroup deal had excluded the asset-management and brokerage operations and put the Federal Deposit Insurance Corp. on the hook for potential loan losses.

Wells Fargo Chairman Dick Kovacevich said that the deal "provides superior value" to the Citigroup deal and that it will allow Wachovia shareholders to "have a meaningful opportunity to participate in the growth and success of a combined Wachovia-Wells Fargo that will be one of the world's great financial services companies."

The deal represents a major reversal from Wells Fargo's historical trend against acquisitions. Just two months ago, Chief Executive John Stumpf said it was highly unlikely Wells Fargo would pursue a large East Coast rival.

But Wells Fargo's appetite for acquisitions began changing in September, as Mr. Kovacevich said the bank "often buys fixer-uppers," adding, "Given the financial conditions today I feel like a kid in a candy store." Wells Fargo had also taken a look at Washington Mutual Inc. before it was seized last week and sold to JPMorgan Chase & Co. for $1.9 billion.

Wachovia shareholders will get 0.1991 share of Wells Fargo stock for each Wachovia share. Following the deal, Wells Fargo expects to incur about $10 billion in merger and integration charges. To maintain its capital position, it plans to issue up to $20 billion of new Wells Fargo securities, primarily common stock.


As part of the deal, Wachovia is issuing Wells Fargo preferred stock that votes with Wachovia's common stock and gives Wells votes equal to 39.9% of Wachovia's voting power.

"Today's announcement creates one of the strongest financial firms in the world and is great for all Wachovia constituencies: our shareholders, customers, colleagues and communities," Wachovia Chief Executive Robert K. Steel said in a prepared statement. He added that the deal "enables us to keep Wachovia intact and preserve the value of an integrated company, without government support."

Mr. Kovacevich said the deal "will result in an immensely strong, stable financial services company." He noted the inclusion of Wachovia's brokerage and asset-management businesses "avoids the complexity and unavoidable loss of value in trying to separate them, which would have disrupted Wachovia's team members and customers." He added, "And, of course, this agreement won't require even a penny from the FDIC."

Charlotte will be the headquarters for the combined company's East Coast retail and commercial and corporate banking business, while St. Louis will remain the headquarters of Wachovia Securities. Three members of the Wachovia board will be invited to join the Wells Fargo board following completion of the deal. Mr. Stumpf indicated the company will try to "retain as many of the talented Wachovia team members as possible."

Citigroup's deal with Wachovia had been hammered out in frenetic negotiations that lasted all of last weekend. The immediate catalyst was that major credit agencies were poised to cut Wachovia's ratings, just as the bank had billions of dollars in debt coming due this week.

Wells Fargo initially said it was prepared to buy Wachovia for more than $20 billion and wouldn't require any government assistance. But late Sunday, the San Francisco bank abruptly changed its mind, setting into motion a desperate scramble through the night that ended with the government presiding over Wachovia's shotgun marriage to Citigroup early Monday morning.

Wells Fargo's deal announced Friday indicates that it changed its mind again and that Wachovia was quick to break its agreement with Citigroup.

Wachovia said it received and approved the proposal from Wells Fargo Thursday night.

Acquiring Wachovia would have vaulted Citigroup into the upper echelon of U.S. banks. The addition of Wachovia also would have allowed Citigroup to boast the third-largest network of U.S. bank branches. Today, Citigroup has about 1,000 U.S. bank branches -- lagging behind nine other banks.

Wachovia's woes came into sharp focus after last week's seizure of Washington Mutual Inc. Shares of Wachovia slumped as investors looked at it as the potential next victim in the credit crunch.

Wachovia wasn't doomed by the same sort of customer exodus that led regulators to seize WaMu's banking operations last week. But federal officials concluded that the bank's deteriorating condition posed a threat to the already fragile U.S. financial system.

Wachovia has tens of billions of dollars in so-called option-ARMs outstanding. The adjustable-rate mortgages allow some homeowners to actually increase their loans' balance by paying less than the full monthly interest they owe. They have been at the heart of surging foreclosures and defaults.

[annarborgator]

Weird, almost a full week after Citi announced. I'm wondering if Citi has been told at this point that they don't qualify to be in the small group of "solution" banks that Treasury et al still trust (BofA, GS, JPM).

[TTBHG]

Are you trying to tell me that economics can work and business can be done without the help of the government and more importantly, taxpayers? Well fuck me.

Good for Wells Fargo and bravo to their CEO for not lining up for a handout and finding a way to remain profitable while expanding.

[TheTodd]

It was actually kind of funny. I've got a buddy that works for Wachovia and we were just talking about Wells Fargo last night. Apparently they were interested in Wachovia some time ago but were waiting for their stock price to fall low enough. I guess the Citi deal made them play their hand earlier than they wanted.

[AdGator02]

not the end of this story... citi is fighting back. http://news.yahoo.com/s/ap/20081003/ap_ ... o_wachovia

[G8rMom7]

Just heard tonight that Citi is going to have to give up according to the courts. They ruled that Wells Fargo is a better a deal for Wachovia, it's employees, it's share holders and the US taxpayer! Finally, someone make sense.

[TheTodd]

I was surely hoping that would happen.

[TheTodd]

Heard on NPR radio this morning that the Fed may propose a deal that neither company likes.

[MinGator]

well there they (fed) go again. they had to offset the common sense response with one that creates issues.