Turnabout: Wells Fargo's Better Deal for Wachovia

I keep saying historical times. I keep seeing new things I've never seen before. One company coming in and taking away a company that has already agreed to a contract with another. Boggling. This says to me "Warren Buffet is confident the mother of all bailout passes and he can unload Wachovia (WB) option ARM loans onto the US people." From Yahoo Finance (emphasis mine; my comments in italics).

• In an abrupt change of course, Wachovia  said Friday it agreed to be acquired by San Francisco-based Wells Fargo & Co. (WFC) in a $15.1 billion all-stock deal, trumping rival suitor Citigroup's (C) plan to acquire Wachovia's banking operations. A key difference is that the Wachovia deal will be done without government assistance, while the Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp. (ah, it's all in the fine print - there will be PLENTY of government assistance - just on the back end, not the front end)
• Wachovia Corp. shareholders will receive 0.1991 shares of Wells Fargo for every share of Charlotte, N.C.-based Wachovia stock they own, valuing Wachovia at about $7 per share. This is a nearly 80 percent premium over the stock's Thursday closing price of $3.91. Shares closed at $10 last Friday, the last trading session before the deal with Citigroup Inc. was announced.
• Wells Fargo will record merger and integration charges of about $10 billion, but says it expects earnings to be boosted within the first year after the acquisition closes. No government assistance is part of the deal terms. Additionally, Wells Fargo plans to issue up to $20 billion of stock, primarily common stock, to maintain a strong capital position.
• The combined company will have total deposits of $787 billion and assets of $1.42 trillion, more than doubling Wells Fargo's totals on both counts. The bank will operate more than 10,000 locations. The two banks currently employ a combined 280,000 people.
• On Monday, Citigroup agreed to buy Wachovia's banking operations for $2.16 billion in a deal orchestrated by the federal government. That deal, which had been approved by the boards of both companies, was still subject to approval by Wachovia's shareholders and regulators.

(See also acquisition conference call transcript.)

Disclosure: No position.

Comments

[Mr. B:]

This is far from over.

Wachovia would have been in receivership this Monday if Citi and the FDIC did not step in. Wells walked. There would have been no real value today without Citi.

The Citi deal also protects taxpayers by issuing the FDIC $12 billion in preferred stock at 6% and warrants.

Wells will find its credit rating lowered. Wells is exposed to California real estate in a big way, especially with second mortgages. Wachovia doubles down on that bet. What happens if this deal is allowed to stand and then Wells needs to be bailed out at sometime in the future?

If the Wells deal stands, it will have a chlling effect on the ability of the FDIC to arrange other bank deals that help protect depositors and minimize the risk to taxpayers.

This deal should belong to Citi. Even the FDIC thinks so. We will see.

2008 Oct 03 12:05 PM

[metal27:]

Thr FDIC statement says it will study the deal and do what is in the best interests of the taxpayer. I take that to mean Citi is out (or "pantsed" as one columnist put it).

2008 Oct 03 02:05 PM

[1 of 4:]

I thought they had to get approval of the WB shareholders for the Citi deal?

Author's comment that Warren Buffet would use this to dump WB's toxic mortgage assets on to the Government is complete BS. Buffet has repeatedly said if you buy these assets at current market rate, you will make money on them. If Buffet had the liquidity, he said he'd participate in the Government's deal. Even though WFC is paying more than Citi, they're still stealing WB. WFC is getting these toxic mortgage assets very cheap and they're writing them down immediately, which means they'll probably sit on them. The way I see it, Buffet is following through on his statement that he'd participate in the Government deal (i.e. buy and hold these distressed mortgage assets) if he had the liquidity. Indirectly he does and it's through his stake in WFC.

2008 Oct 03 03:00 PM

[Special Monkey:]

Not knowing a lot about this, but generally having a bad feeling about the mega-bank Citi - I think if the WFC deal is better for shareholders, let Citi counter-offer; or perhaps Wachovia doesn't want to partner with Citi in any deal? And to say a merger with WFC is a bigger risk for taxpaers than Citi or it affects the FDIC's future ability sounds like pretty much like hogwash.

2008 Oct 03 08:43 PM

[Honey:]

Let Citi buy out someone else. Wachovia should merge with Wells Fargo.

2008 Oct 04 01:18 PM