Wells Fargo Overview: Wells Fargo is large diversified financial services company headquartered in San Francisco whose major lines of business include:
- Banking
- Insurance
- Investments
- Mortgages
- Consumer Finance
Wachovia Merger: Wells Fargo agreed to acquire Wachovia on October 3, 2008 for $15.1 billion in stock. By October 12, 2008, when the Federal Reserve gave the final regulatory approval, the value of this offer had declined to $11.7 billion, after a week of major declines in stock prices. The merger more than doubles Wells Fargo in size and extends its geographic reach to 39 states, as far as bank branches are concerned. It also makes Wells Fargo a major national player in securities brokerage.
Wachovia's Charlotte, NC headquarters will become the new headquarters for Wells Fargo banking operations in the East. Wells Fargo Advisors, formerly Wachovia Securities, will remain headquartered in St. Louis, MO.
Citigroup, however, threatens a $60 billion breach of contract suit, based on its earlier (September 29) offer to acquire just the banking operations of Wachovia.
Size: Wells Fargo reports these pre-merger figures as of June 30, 2008:
- Employees = 160,000
- Assets = $609 billion
- Deposits = $339 billion
- Assets Under Management (Mutual Funds) = $151 billion
- Customers = 28 million
- Stores (Locations) = 5,941
- ATMs = 6,950
The combined Wells Fargo and Wachovia would have these metrics as of June 30, 2008:
- Employees = 280,000
- Assets = $1.42 trillion
- Deposits = $787 billion
- Assets Under Management (Mutual Funds) = $258 billion
- Customers = 48 million (contains overlap)
- Stores (Locations) = 10,761
- ATMs = 12,227
All the following figures are from pre-merger Wells Fargo:
Regional Banking:
- Stores (locations) = 3,327
- Customers = 11.2 million households
- Presence in 23 states
Home Mortgage:
- Stores (locations) = 2,400
- Customers = 7.9 million
- Originations = $272 billion in 2007
- Portfolio = $1.53 trillion in 2007
- Presence in 50 states, including via the Internet
Card Services:
- Accounts = 7.8 million credit, 20.4 million debit
- Outstandings = $12.5 billion
Personal Credit Management (personal loans):
- Accounts = 1.5 million
- Balances = $7.7 billion
Home Equity:
- Customers = 1.5 million households
- Portfolio = 84 billion
- Second-largest prime home lender in the U.S., with distribution in 50 states
Wells Fargo Financial (auto finance, secured real estate lending, consumer and private-label credit cards, and commercial services, headquartered in Des Moines, IA):
- Customers = 7.8 million households
- Employees = 19,500
- Stores (locations) = 1,025
- Presence in 48 states, 10 Canadian provinces, Puerto Rico, Guam and Saipan
Wealth Management Group:
- Brokerage
- Investment Management
- Trust and Estate Services
- Private Banking
- Insurance
- Clients = 923,000
- Assets = $256 billion
Fortune magazine ranks pre-merger Wells Fargo among U.S. companies as:
- Number 17 in profits
- Number 41 in revenues
- Number 33 in employees
Positives: Wells Fargo has remained strongly profitable through the credit crisis. This points to sound business practices and management. The company also has received numerous accolades:
- The highest credit ratings granted by Standard & Poor's and Moody's
- The 18th most valuable brand in the world, per the Financial Times
- The 16th most admired company in the world, per Barron's
- One of the top 50 places to launch a career, per Business Week
- Various awards for diversity, including opportunities for executive women
Analysts appear to agree that the Wells Fargo offer for Wachovia would be a strategic win. Meanwhile, shares of Citigroup fell sharply when its offer apparently lost.
Wells Fargo will receive a $25 billion equity infusion from the Treasury Department pursuant to the $700 billion financial rescue package. This will solidify its already strong financial position even further.
Negatives: Wells Fargo has been building loan loss reserves and extending payment terms on delinquent loans. This may point to some hidden problems. On the other hand, the company reports that its efforts to work with customers who are in arrears has resulted in some recoveries.
The Wachovia deal will require about $10 billion of merger and integration costs, a large exposure. Additionally, unlike an earlier offer from Citigroup, Wachovia will be absorbed by Wells Fargo with no assistance from the FDIC in covering bad loans. Lastly, Wachovia Securities is under federal probe for possible illegal business practices.
