WORLD> America
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WORLD> America
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Wells Fargo acquiring Wachovia for $15.1 billion
(Agencies)
Updated: 2008-10-03 19:47 Charlotte will be the headquarters for the combined company's East Coast retail and commercial and corporate banking business. St. Louis will remain the headquarters of Wachovia Securities. Additionally, three members of the Wachovia board will join the Wells Fargo board when the transaction is completed. 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.
In addition to assuming $53 billion worth of debt, Citigroup had agreed to absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio. The FDIC agreed to cover any remaining losses in exchange for $12 billion in Citigroup preferred stock and warrants. But the failure of the government's proposed $700 billion bailout for financial institutions Monday afternoon cast doubt on whether Citigroup would be able to rid itself of some of Wachovia's bad debt. While the proposal would have prevented most banks from profiting on the sale of troubled assets to the government, an exception would have been made for assets acquired in a merger or buyout. That would have allowed Citigroup to sell Wachovia's distressed mortgage-related assets to the government for a profit. A revised version of the bailout plan was passed on Wednesday by the Senate and goes up for a House vote on Friday. The plan still centers on enabling the government to spend billions of dollars to buy bad mortgage-related securities and other devalued assets from troubled financial institutions. Citigroup has not turned a profit for three straight quarters, and lost a total of $17.4 billion during that period after writing down its assets by about $46 billion. That's the most write-downs of any U.S. bank. While Wells Fargo has logged three straight quarters of profit declines, the bank has been weathering one of the nation's worst credit crises much better than most of its competitors, in part because it had less exposure to the subprime mortgages whose failure undermined the financial sector. That means it hasn't been forced to take the huge number of write-downs that other banks have needed. Under Stumpf the bank also has continued raising its dividend at a time when many other financial institutions are slashing theirs to preserve capital. John G. Stumpf, Wells Fargo president and CEO, took over in June 2007 — near the start of the credit crisis — from Kovacevich, who remains chairman. Both men worked since the 1980s at Norwest Corp., Wells Fargo's predecessor. Wachovia, like Washington Mutual, which was seized by the federal government last week, was a big originator of option adjustable-rate mortgages, which offered very low introductory payments and let borrowers defer some interest payments until later years. Delinquencies and defaults on these types of mortgages have skyrocketed in recent months, causing big losses for the banks. This summer, Wachovia reported a $9.11 billion loss for the second quarter, announced plans to cut 11,350 jobs — mostly in its mortgage business — and slashed its dividend. Wachovia also boosted its provision for loan losses to $5.57 billion during the second quarter, up from $179 million in the year-ago period. Wachovia shares were up $2.89, or 74 percent, at $6.80 in premarket trading, while Wells Fargo rose $2.09, or 5.9 percent, to $37.25. Citigroup shares were down $3.30, or 14.7 percent, to $19.20.
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