Wells Fargo: New King of the Hill?
Last Monday, it looked for sure that Citigroup had managed the deal of the century. Buying Wachovia at a dirt cheap price of around $1 a share, and arranging that the FDIC would make much of the uncollectible mortgage debt disappear at taxpayer expense.
But in came California-based Wells-Fargo as the white knight. Wells Fargo, which had managed to avoid the worst of the orgy of bad loans and derivatives, had managed to keep profitable and even raise dividends while other banks were shaken, In fact, it was just announced that Wells Fargo had outdistanced Citigroup to become the #3 bank by market value. Quite a trick, since according to Bloomberg News, Citigroup had a market value twice as large as Wells Fargo's two year ago.
In any case, Wells Fargo was in a position to bid seven times as much for Wachovia ($15 billion) as Citigroup offered. It also, in a move likely to win general public support, it will decline the FDIC handout at the same time. The Wells Fargo offer is for all Wachovia operations (including stockbroker A.G. Edwards and its Evergreen mutual funds), whereas Citigroup's bid excluded those non-banking operations.
If Wells Fargo managed to complete the purchase, it will become a top tier national bank, leapfrogging both Bank of America and JP Morgan Chase in terms of deposits. Wachovia's East Coat operations will bring it new territory as most of its banks are in the West and Midwest.
While both Wachovia and the FDIC are pleased by the counterbid, Citigroup claims it had a final deal and is taking the matter to court.
And the usual conclusions are well stated an International Herald Tribune article ("Wells Fargo to pay $15.1 billion for Wachovia", 10/9/08):
A sale to Wells Fargo would further concentrate Americans' bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Wells Fargo would control more than 30 percent of the industry's deposits. Together, those three would be so large that they would dominate the industry, with unrivaled power to set prices for their loans and services. Given their size and reach, the institutions would probably come under greater scrutiny from federal regulators. Some small and midsize banks, already under pressure, might have little choice but to seek suitors.
6:46:09 PM 
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