Wells Fargo to raise $10 billion in stock offer news
06 November 2008

Wells Fargo, now the biggest bank in the US West Coast after it grabbed Wachovia for $15.1 billion under Citigroup's nose in a midnight deal (See: Citigroup abandons fight for Wachovia; will press lawsuit against Wells Fargo), said yesterday that it would try to raise $10 billion in a common stock offering down from its original plan of $20 billion to fund the purchase of Wachovia. 

Wells Fargo had initially planned to raise $20 billion through sales of common shares, but opted to reduce the amount after it received an unexpected $25-billion capital from the sale of preferred stock to the US Treasury last month as part of the government's plan to bolster the finances of banks and encourage them to step up lending.

Wells Fargo's intention to raise an additional $10 billion is related to incurring a like amount in in merger related costs.

The purchase of Wachovia would double the size of the bank, making it to be the biggest lender in the US with $1.4 trillion in assets and with 6,653 branches it becomes the largest bank in the US by branches.

The acquisition also makes it to be the second largest US bank by deposits with $713 billion, behind Bank of America's $720 billion.

Wachovia had projected $26.1 billion of losses on the $118.7 billion portfolio, but according to Wells Fargo's estimate, the total could near $36 billion. Wells Fargo expects losses on Wachovia's overall $482.4 billion loan portfolio of $71.4 billion, down from an earlier $74 billion.

Wachovia was pushed to find a buyer by the US Fed after its losses rose on its portfolio of high-risk option adjustable-rate mortgages, and companies withdrew billions of dollars of deposits from the bank.

Wells Fargo has indicated that it would downsize Wachovia's corporate and investment bank when the banks merge by the end of this year and it expects at least $5 billion a year of cost savings, and the earnings per share to increase by a minimum of 20 per cent beginning in 2011.

''The combination of the market capital and the capital investment from the government will enable us to finance the Wachovia acquisition, to continue to build our franchise and gain market share as we've done throughout the credit crunch and to maintain one of the strongest balance sheets and highest capital ratios among U.S. financial services companies,'' Wells said last week.

The board of Wells Fargo has agreed to keep its chairman, Dick Kovacevich on as chairman for an interim period even though he turned 65 last week and is at the bank's mandatory retirement age, to handle the bank's merger with Wachovia.

Many analyst believe that the timing to raise money through sale of common shares was bad as yesterday the Dow Jones Industrial Average plunged almost 500 points, with Wells Fargo's stock dropping 3 per cent in late trading Wednesday on top of a 9 per cent sell off in regular action while Citi dropped 14 per cent and Bank of America lost 12 per cent.


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Wells Fargo to raise $10 billion in stock offer