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Wells Fargo deal could save local jobs
West Coast bank could make Wachovia working arm on the East Coast
AP File Photo
A Wells Fargo deal with Wachovia could reaffirm Wachovia’s presence in Charlotte.
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Published: October 5, 2008
Wells Fargo & Co.'s desire for an East Coast-West Coast presence is likely to benefit Wachovia Corp. beyond leaving its banking network mostly intact, analysts said.
The proposed $14.8 billion deal, announced Friday, also could help preserve most of the 3,000 Wachovia jobs in Winston-Salem and 20,000-plus jobs in Charlotte, said Tony Plath, a finance professor at UNC Charlotte.
"Having Wells Fargo as the buyer will take a much less severe toll on Wachovia's work force in North Carolina than having Citigroup," Plath said.
Citigroup has made a $2.2 billion offer for Wachovia, along with assuming $95 billion in debt and loan losses, in a hastily brokered deal assisted by the Federal Deposit Insurance Corp. Citigroup said Friday that it plans to fight the Wells Fargo offer, relying primarily on an "exclusivity agreement" that it signed with Wachovia.
Wells Fargo said that Charlotte would serve as the East Coast headquarters for its retail, commercial and corporate-banking business.
By comparison, Citigroup has said only that it would have a "strong presence" in Charlotte.
Analysts have said that Winston-Salem could lose much of its Wachovia work force as part of a Citigroup deal, particularly if it folds Wachovia's wealth-management division into Smith Barney.
"My guess is that Wells Fargo would let Wachovia handle everything east of the Mississippi River and it would handle everything west of the Mississippi," Plath said. "It would consolidate where there are common operations. It wouldn't surprise me if the merged bank is called Wells Fargo Wachovia to capture on the brand value in both names.
"Because Wachovia's wealth-management department is larger and is more profitable, I believe Wells Fargo would leave its operations alone in Winston-Salem. In fact, Wells Fargo is more likely to use Wachovia's expertise to develop a West Coast version of Wachovia Wealth Management."
Analysts have said for years that Wells Fargo has been interested in North Carolina and in a larger banking presence in the Southeast.
Rumors of a deal involving BB&T Corp. and Wells Fargo swirled fiercely during Memorial Day weekend in 2004. The speculation dissipated after about a week of unusually high trading volume in BB&T shares, as well as unusually high options activity.
John Stumpf, the president and chief executive of Wells Fargo, called the purchase of Wachovia "a unique opportunity to expand both our community banking and wholesale banking presence in current markets and enter some new markets by acquiring another full-service financial-services retail-banking company with a strong culture of customer service and community involvement very similar to ours."
Gayle Anderson, the chief executive and president of the Greater Winston-Salem Chamber of Commerce, said, "Our strategy is to work with whoever is successful to make the business case for jobs in Winston-Salem.
"Wachovia has superior information-technology systems. The existing wealth-management operations here are relationship-driven and profitable and should be a model for how either bank could expand its wealth-management business along the East Coast."
Analysts say that the selling of Wachovia will be a test of how free the federal government wants the free-enterprise system to be.
The Wells Fargo offer for Wachovia is clear of the need for government assistance, the banks said, despite the turmoil that the housing crisis has caused by financial institutions.
By comparison, Citigroup's offer requires significant help from the FDIC, which pushed for the hastily brokered deal to keep Wachovia from total collapse.
In addition to assuming $53 billion worth of debt, Citigroup would absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio, with the FDIC agreeing to cover any remaining losses. Citigroup also would issue $12 billion in preferred stock and warrants to the FDIC.
The FDIC approached Wells Fargo with a similar offer of assistance, but the bank temporarily dropped out of negotiations for Wachovia because "it didn't have time to get comfortable with that deal," said Dick Kovacevich, the chairman of Wells Fargo.
"Citi moved on Wachovia under directions of the FDIC, whereas Wells Fargo's is a market move," said Swapen Sen, an associate finance professor at Winston-Salem State University.
"Wells Fargo's offer is better for Wachovia shareholders, but it changes the plans of the Feds who designated Citi as the one to succeed.
"If the Feds want to play the role of ‘guardian of the economy,' they have to sweeten their deal to Wachovia, most probably by behind-the-scene promises of protection," Sen said.
Plath said that the sale of Wachovia is not a legal dispute between two private parties, but realistically between Citigroup and the FDIC.
"Bob Steel, its chief executive, and Wachovia's board didn't do this, the FDIC did," Plath said. "By the time the Wachovia-Citigroup deal was negotiated, Wachovia's board and management team were basically watching the FDIC negotiate the terms of the bank's sale.
"They weren't controlling the bank anymore."
The FDIC weighed in on the dispute with a brief statement Friday, saying it "stands behind its previously announced agreement with Citigroup.
"The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest."
Plath said he believes the FDIC will offer Citi the opportunity to match Wells Fargo's offer "because otherwise, Wachovia shareholders will reject the present Citi deal."
"But Citi doesn't have the balance sheet to do that," he said. "After that, the FDIC will sit Wells Fargo and Citi down and find a way to settle the dispute agreeable to both sides. Citi does deserve something for providing Wachovia with liquidity assurance the past five business days."
Plath said that the only way the FDIC could "take the Wachovia shareholders out of the picture is to let Wachovia fail."
"But how can you do that if you have a better deal for the bank, shareholders and the community," he said. "After all, the FDIC's charge is to do what is less disruptive for those groups."
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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