Surprise move may turn out better for employees, shareholders and
taxpayers. Wachovia has backed away from an agreement in
principle reached just days ago to sell its banking
businesses to Citigroup and entered into a definitive
agreement to sell itself hook, line and sinker to Wells
In a complicated deal backed by the U.S. government, Citi had
proposed to take over Wachovia's banking businesses, including
its multifamily office Calibre, for $2.16 billion of its stock
and the assumption of $53 billion of Wachovia's subordinated
The FDIC promised to cover all but $42 billion of losses
Citi might incur on Wachovia's $312-billion portfolio
of mortgage-related securities. In exchange, the FDIC was in
for Citi preferred stock and warrants worth about $12
That would have left Wachovia as a standalone, publicly traded
brokerage with 14,600 advisors and $1.1 trillion in client assets
at the end of June 2008 and a fund manager, Evergreen, which
managed $246 billion at the end of June.
Considering the noise Wachovia has made about integrating its
brokerage with its banking business, some say Wachovia Securities
by itself would be in hot pursuit of another bank to take it
over. On the other hand, media reports have made much in recent
days of the supposed attractiveness of independence to some of
its advisors -- especially 5,000 or 6,000 who came over when
Wachovia bought St. Louis, Mo.-based A.G. Edwards last
Now though, Well Fargo is proposing to pay $15.1 billion for
all of Wachovia including its debt, deposits and
"This deal enables us to keep Wachovia intact and preserve the
value of an integrated company, without government support," says
Wachovia's CEO Robert Steel.
If combined today, the brokerage divisions of Wachovia and Wells
Fargo would have $1.373 trillion in client assets and about
15,890 financial advisors -- $1.17 trillion of that through
Wachovia's 14,600 reps.
Elizabeth Nesvold, managing partner of New York-based M&A
consultancy Silver Lane Advisors agrees that an all-in deal
between Wachovia and Wells Fargo makes more sense than a partial
sale of Wachovia to Citi.
For one thing, it gives San Francisco-based Wells Fargo a chance
to make good on an ambition to extend its retail-banking
footprint east of the Mississippi. Wachovia has 3,300 branches
with most of them concentrated in the U.S. South and on much of
the Eastern Seaboard.
This lack of geographic overlap might mean that more Wachovia
employees will keep their jobs with Wells fargo at the helm than
would if Citi, a bank with a signficant retail presence in the
eastern U.S. , took over.
And, from a wealth-management perspective, Calibre makes a better
fit -- geographically, culturally and in terms of market
segmentation and service offerings -- with Wells Fargo's Family
Wealth Group than with anything up and running at Citi.
"It's a better deal for everyone," says Nesvold, comparing the
proposed merger of Wells Fargo and Wachovia to a tie-in between
Wachovia and Citi. "It's better for shareholders, better for
Wachovia employees, and better, frankly, for U.S. taxpayers."
However that may be, Citi is fuming about Wachovia's change of
"Wachovia's agreement to a transaction with Wells Fargo is in
clear breach of an exclusivity agreement between Citi and
Wachovia," Citi says in a statement.
According to Citi, its agreement with Wachovia stipulates "that
Wachovia will not enter into any transaction with any party other
than Citi, and will not participate in any discussions or
negotiations with any third party" and underlines the notion
"that the parties would be irreparably harmed by any breach of
the agreement and that the remedy of specific performance of the
agreement is appropriate."
Citi further notes that the value to Wachovia shareholders of its
proposed takeover of the company's banking businesses "was
substantially in excess of Wachovia's" 25 September 2008 closing
price -- and that Citi has "been providing liquidity support to
Wachovia Bank" since the two firms announced their tentative
Citi is expected to sue to keep Wells Fargo and Wachovia apart.
Either that, or make a higher bid for Wachovia; maybe for all of
it this time. -FWR
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