BID® Daily Newsletter
Oct 3, 2008

BID® Daily Newsletter

Oct 3, 2008

MAKING MOVES


In an unexpected move this morning, Wells Fargo stole Wachovia from Citigroup, saying it would buy the entire company for $15.4B, or about 7x the value offered by Citigroup (which was also leaving AG Edwards and Evergreen behind). Because of this sharp difference in price and structure, no counter offer from Citigroup is expected.
In short, Wells Fargo will assume the risk in Wachovia (albeit after first taking a $32B writedown on Wachovia's toxic mortgage portfolio and a 26% reduction to the CRE portfolio), but get the return of a significant nationwide franchise. In addition, Wells did not ask for any FDIC support, so it is good for taxpayers and the industry. Wells Fargo said it will issue $20B in new common stock as part of the transaction to ensure capital levels remain strong.
As for community banks, the combination of Wells and Wachovia creates a powerhouse of a competitor. The company will have combined assets of $1.4T; $787B in deposits; 48mm customers; 10,761 branches; 12,227 ATMs and more than 280k employees. It will do business in 39 states, as well as D.C. and will have the #1 deposit market share in 17 of those states. This competitor combines a strong customer service culture in Wachovia with a strong sales/cross-selling culture in Wells.
Community bankers should also be aware that a significant branch reduction is likely to come into play (given overlap in certain markets), so if you are lucky enough to be in those areas, opportunities abound to pick up new locations and deposits.
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