October 3, 2008
Just days after agreeing to sell its banking operations to Citigroup,
Wachovia now says it has agreed to be acquired by Wells Fargo instead.
Wells Fargo was able to supplant rival Citigroup by offering to
execute the deal without assistance from the Federal Deposit Insurance
Corp.
"This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," said Robert Steel, Wachovia's president and CEO.
The Wachovia board approved Wells Fargo's bid Thursday night. The sale must still be approved by Wachovia's shareholders. Wells Fargo said it expects the deal will be cleared by government regulators and will close before the end of this year.
The previous Citigroup deal was hastily arranged earlier this week, with FDIC assistance. The Charlotte Observer reports Wachovia experienced a "silent run" last week and there were real concerns the bank wouldn't be able to open this week. The newspaper reports FDIC applied pressure on Wachovia over the weekend to make a sale. Wachovia at the time was in the process of considering merger partners.
"When Wachovia opened Monday it would not have had a source of liquidity," the Observer quoted a source familiar with the situation. "It really could not have opened under those circumstances."
The situation became urgent after Wachovia executives noticed an unusual number of withdrawals the day after the Washington Mutual failure. Many of the withdrawals were made by large corporate depositors, who had more than $100,000 in the bank. As a result, the bank's operating capital fell to dangerously low levels.
As a result, Citigroup agreed to buy Wachovia's banking operations and most of its assets. FDIC agreed to facilitate the sale by picking up losses above $42 billion on a $312 billion loan book, according to the Observer. That deal was abandoned when Wells Fargo indicated it would not require taxpayer assistance.
