Wells Fargo agrees to acquire Wachovia for $15.1 billion

October 04 12:05:01 PM, LA Times

Citigroup objects, citing its own agreement Monday to acquire Wachovia's banking operations. Today's news is the latest in a series of Wall Street bombshells. Bidding to become the country's fourth superpower bank, Wells Fargo & Co. agreed today to buy all of Wachovia Corp. for more than $15 billion in stock, shouldering aside Citigroup Inc.'s deal to acquire Wachovia's banking operations.

Citigroup indicated it would contest the deal, saying its government-brokered agreement, announced Monday, was binding. Citigroup had agreed to pay $2.16 billion, or about $1 a share, in a transaction that excluded Wachovia's securities brokerage and mutual-fund units.

Today's accord values Wachovia stock at about $7 a share -- nearly 80% higher than its closing price Thursday of $3.91. Last week the shares closed at $10 in their last trading before the deal with Citigroup was announced.

The Wells-Wachovia deal is the latest in a series of bombshells that are reshaping the U.S. financial system as rising problems with home loans and mortgage-backed bonds cripple some of its major players. JPMorgan Chase & Co. recently agreed to acquire Washington Mutual Inc., and Bank of America bought Countrywide Financial Corp. in July.

San Francisco-based Wells Fargo, by far the largest bank based in the West, would have a national retail footprint if it acquired Wachovia, based in Charlotte, N.C. The merged companies would have more than 10,000 branches in 39 states.

The transaction also would land Wells Fargo in the exclusive club of banks with more than $1 trillion in assets, whose members currently include New York-based Citigroup and JPMorgan Chase, along with Bank of America, also based in Charlotte. The combined assets of Wells and Wachovia are about $1.4 trillion.

Unlike the Citigroup deal, a Wells Fargo takeover would require no federal backstop. Citigroup had agreed to absorb the first $42 billion in losses on a pool of troubled Wachovia loans, with the Federal Deposit Insurance Corp. on the hook for additional losses.

Citigroup had agreed to give the FDIC stock and warrants in exchange for the agency's commitment to share the risk of losses.

In a statement, FDIC Chairman Sheila Bair said the agency "stands behind its previously announced agreement with Citigroup."

"The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest," Bair said.

But investors were voting in favor of the takeover by Wells Fargo. In midday trading, Wachovia stock was up $2.71, or 69%, at $6.62, and Wells Fargo rose $2.08, or 5.9%, to $37.24. Citigroup fell $1.87, or 8.3%, to $20.61.

In a news release, Wells and Wachovia described their pact as superior to the Citigroup transaction.

"This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," Wachovia Chief Executive Robert K. Steel said.

Wells Fargo Chairman Richard Kovacevich said the deal would be better for Wachovia shareholders because they would own stock in a company that combined Wells Fargo's sales-driven culture with Wachovia's reputation for extraordinary customer service.

Wachovia ran into trouble under its former CEO, the expansion-minded Ken Thompson. The company's investment banking and commercial mortgage businesses struggled, but its biggest problems stemmed from its 2006 acquisition of Golden West Financial Corp. the parent of World Savings of Oakland.

World had been the largest provider of pay-option adjustable rate mortgages, which gave borrowers the option to pay so little that their loan balances went up. Wachovia has $122 billion of these mortgages on its books, many of them loans that are now larger than the value of the homes.

scott.reckard@latimes.com



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