Wells Fargo Sneaks Into Wachovia, Steals It From Citi (WFC, WB, C, SOV, NCC, FITB)

Wachovia Corp. (NYSE: WB) is now in play as Wells Fargo (NYSE: WFC) has come out with an alternative merger deal in a stock for stock merger offer for all of Wachovia including all banking operations.  Wells Fargo has reached an agreement to acquire all of Wachovia Corporation and all its businesses and obligations, including its preferred equity and indebtedness, and all its banking deposits. 

The ratio offered is 0.1991 shares of Wells Fargo stock. This is an alternative merger from the Citigroup (NYSE: C) government assisted buyout.  Wells Fargo will record Wachovia’s credit-impaired assets at fair value.  Wells Fargo claims it needs no financial assistance from the Federal Deposit Insurance Corporation or any other government agency. Wells Fargo will also issue $20 billion in new securities to shore up its liquidity as well.

What is interesting here is that this may actually be a game changer for the banking sector.  It has two paths that could come from it.  First, the FDIC hasn’t keyed in on this.  We do not know if the FDIC will step in yet to say the original Citi deal has already been reached or if either part will make a lawsuit out of this.  Second, this could put other troubled banks into play.  Sovereign Bancorp (NYSE: SOV), National City Corporation (NYSE: NCC), and Fifth Third Bancorp (NASDAQ: FITB) are all trading higher on this in hopes that Citi or others will step in now and snatch them up.  This might even mean there is something left for the common shareholders there too.

Wachovia closed at $3.91 yesterday and shares are up above $6.00 in early trading reaction to this announcement.  Citigroup is trading down about 6% in early trading on this.  You snooze, you lose.

Jon C. Ogg
October 3, 2008