UPDATE 3-Wells Fargo to raise $10 bln to fund Wachovia deal

Wed Nov 5, 2008 6:15pm EST

(Adds investor comment)

By Jonathan Stempel

NEW YORK Nov 5 (Reuters) - Wells Fargo & Co (WFC.N) said on Wednesday it plans to sell at least $10 billion of stock to help fund its purchase of Wachovia Corp WB.N, which will create the fourth-largest U.S. bank by assets.

San Francisco-based Wells Fargo previously said it planned to raise up to $20 billion to fund the all-stock purchase of Wachovia, which it valued at $15.1 billion upon announcing it last month. That value had fallen to about $13.6 billion by Wednesday's close because Wells Fargo shares have declined.

Wells Fargo expects to sell the new stock after U.S. markets close on Thursday. The new capital is on top of the $25 billion Wells Fargo is receiving by selling preferred shares to the government, as part of U.S. Treasury Secretary Henry Paulson's $700 billion industrywide bailout.

Through Wednesday's close, Wells Fargo shares were up 5 percent this year, outperforming most major lenders, despite falling 8.9 percent to close at $31.68. They fell another $1.44, or 4.6 percent, to $30.24 after-hours.

"There was some expectation that additional capital might not be needed with the government infusion," said James Ellman, a portfolio manager at Seacliff Capital in San Francisco.

"There was also a sense Wells Fargo was overly pessimistic in estimating credit losses on Wachovia's book," he added. "If losses were going to be significantly less than that, then there shouldn't be a need for extra capital."

Wells Fargo expects to complete its purchase of Charlotte, North Carolina-based Wachovia by year end. The purchase would more than double Wells Fargo's size, creating a lender with $1.4 trillion of assets and 6,653 banking offices.

"This has been the No. 1 deal on our radar screen for a very long time," Chief Executive John Stumpf said on a conference call.

Regulators in late September pushed Wachovia to find a buyer and avoid possible bankruptcy after losses soared on a portfolio of "Pick-a-Pay" adjustable-rate mortgages that let borrowers pay less than the interest and principal due.

Wachovia projected $26.1 billion of losses on the $118.7 billion portfolio, but Wells Fargo said on Wednesday the total could reach $36 billion, even with some planned refinancings.

Wells Fargo nevertheless expects losses on Wachovia's overall $482.4 billion loan portfolio of $71.4 billion, down from an earlier $74 billion. The bank expects the merger to boost earnings per share at least 20 percent starting in 2011.

JPMorgan is arranging the stock offering. Goldman Sachs & Co, Morgan Stanley, UBS and Wachovia Securities are joint bookrunners. (Reporting by Jonathan Stempel; Editing by Bernard Orr, Richard Chang)

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