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| From the Wild West to Wachovia: Wells Fargo takes on Citi |
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Time is GMT + 8 hours
Posted: 3-Oct-2008 23:23 hrs |
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| A woman uses an ATM at a Wachovia Bank branch in Washington, DC, 2 October. Wells Fargo has announced a 15.1-billion-dollar bid for troubled banking rival Wachovia in an attempt to outflank Citigroup and its government-backed rescue plan. |
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Wells Fargo announced a 15.1-billion-dollar bid for troubled banking rival Wachovia on Friday in an attempt to outflank Citigroup and its government-backed rescue plan.. The proposed acquisition immediately ran into opposition from Citi, which claimed exclusive rights for Wachovia after it announced a takeover deal on Monday for the banking operations of the North Carolina-based firm.. Wachovia and Wells Fargo said earlier that they had "signed a definitive agreement for the merger of the two companies" without government assistance.. The proposed deal is the latest move in the great redrawing of the US financial landscape as commercial and investment banks go bust or seek takeovers because of losses linked to the subprime housing market.. The planned acquisition by San Francisco-based Wells Fargo, which traces its roots to the Wild West and the Gold Rush of the 19th century, would give it the biggest network of branches in the US.. The deal covered "all of Wachovia's banking operations in a whole company transaction requiring no financial assistance from the Federal Deposit Insurance Corporation or any other government agency," the statement said.. If the deal were to go through, Wells Fargo would have 10,761 branches, 4,618 more than Bank of America Corp., which currently has the most branches in the US.. Wachovia had been negotiating a merger with banking giant Citigroup in which the US government would have taken a stake in Citigroup in exchange for guaranteeing a large portion of Wachovia's distressed assets.. Citigroup's share plummeted after the news, losing 12 percent to 19.85 dollars. Some analysts suggested the loss of the deal with Wachovia would leave question marks over the solidity of Citigroup's finances.. But Citi said it would not give up without a fight.. "Wachovia's agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia," Citigroup said in a statement.. "Citi was negotiating in good faith and (had) nearly completed the definitive agreements required to consummate the Citi/Wachovia transaction that was announced on Monday," the bank said.. Wachovia had been in danger of failure after its shares lost 73 percent of their value in a year as investors feared a panic run on the beleaguered institution.. Many thought the fourth-biggest bank by assets would share the fate of its rival Washington Mutual, which was seized by the government and sold to investment bank JPMorgan Chase last week in the biggest-ever US bank failure.. Shares in Wachovia jumped 74 percent to 6.85 dollars, while those of Wells Fargo leapt 8.9 percent to 38.34 dollars.. The proposed acquisition also illustrates how stronger financial institutions in the United States, those left unscathed by the worst of the housing and credit crisis, are in a position to buy rivals at bargain prices.. The deal is still subject to approval by Wachovia shareholders and US regulators, however.. The Federal Reserve and Office of the Comptroller of the Currency, which were involved in the Citigroup deal, said they had not yet reviewed the proposed Wells Fargo transaction.. Under terms of the takeover approved unanimously by the boards of both companies, Wachovia shareholders will receive 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock, they said.. The transaction, which was based on Wells Fargo's closing stock price of 35.16 dollars on October 2, is valued at 7.00 dollars per Wachovia common share for a total transaction value of approximately 15.1 billion dollars.. Wells Fargo said the acquisition would cost it 10 billion dollars in integration expenses and it would issue up to 20 billion dollars in securities to bolster its capital position.. "Today's announcement creates one of the strongest financial firms in the world and is great for all Wachovia constituencies," said Robert Steel, president and chief executive of Wachovia Corp.. "This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support.". Wells Fargo chairman Robert Kovacevich said the deal was "a compelling value for Wachovia shareholders." — AFP
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