Wells Muscles Out Citi, Will Pay $15.1b for Wachovia, No FDIC Involvement

On Monday night Wells Fargo was in first position to acquire Wachovia. Then on Tuesday morning, it turned out that Citigroup would pay $2.16 billion for the bulk of Wachovia, including five depository institutions, and assume its senior and subordinated debt. Wachovia would retain ownership of its retail brokerage unit, AG Edwards, and its asset-management division, Evergreen. Also, Citi had entered a loss-sharing agreement with the FDIC on a pre-agreed pool of loans where Citi would absorb about $42 billion in losses on a $312 billion pool of loans, and the FDIC will absorb the rest.

Now, under the new Wells deal, Wells would pay $15.1 billion for all of Wachovia and the FDIC would be on the hook for nothing. To shareholders as well as the government and taxpayers, this seems like a safer deal. For Wells, it’s questionably safe because they steered clear of the Option ARM loan market and they’d inherit Wachovia’s $120b option ARM portfolio. But they’d also grow their branch network to 10,761 branches (which the WSJ said is 4,618 more than Bank of America Corp.), and would have $787 billion of deposits, which is second only to J.P. Morgan Chase & Co—after JPM bought WAMU last week in another FDIC-brokered deal, they grew to 5400 branches and $900b in deposits.