NEW YORK (Reuters) - Wells Fargo & Co said on Friday it reached a deal to buy Wachovia Corp for about $15.1 billion, after Citigroup Inc’s attempt to buy Wachovia’s banking assets was called off.
Prior to receiving the Wells Fargo proposal, Wachovia had been negotiating with Citigroup to complete a transaction supervised by the Federal Deposit Insurance Corporation (FDIC) that included assistance from the government.
Wachovia shares surged 66 percent in premarket trading to $6.51, while Wells Fargo shares edged up less than 1 percent to $35.50. Citi shares slumped 11 percent to $20.
“I think it’s a more elegant solution for Wachovia shareholders. It keeps the franchise together, it gives them some kind of price, to me it just makes more sense.
“If I were a Wells Fargo shareholder... I wouldn’t be so happy. Wells is going to have to go to the capital markets at a time when it’s not so easy to raise capital.
“(Citigroup Chief Executive Vikram) Pandit said Citi needed to have more of a U.S. retail deposit presence... he’s now going to be called to account for that.”
CASSANDRA TOROIAN, CHIEF INVESTMENT OFFICER, BELL ROCK CAPITAL - PAOLI, PENNSYLVANIA
“For Citigroup, this is a real loss...this was a deal that was going to save them as much as it was saving Wachovia.
“I think it was a really smart move by Wachovia to entertain a Wells Fargo, obviously unsolicited, bid. I guess they figured they were doing the right thing for shareholders.
“I think it’s a better deal for them.”
“The one question ahead was that Citi has not really done any mergers or transactions of this size for some time, there was execution risk there.”
KEITH DAVIS, FINANCIAL ANALYST, PORTFOLIO MANAGER FARR, MILLER & WASHINGTON IN WASHINGTON, D.C.
“The market doesn’t seem to like that for Citi. It looks like Wells Fargo is not getting any government support, so I would think that would provide a little confidence to the market and possibly take financial stocks up today even ahead of the vote, but I think we have to look to that vote to determine the fate of financials today and possibly into next week.
“But I think this is a positive. It shows that obviously Wells Fargo is taking their time and has done their due diligence so possibly the credit losses on option arms in California maybe won’t be as bad as expected.
“I think it’s indicative of just how pessimistic the whole market has become on the ultimate credit experience that’s going to play out over the next year and half. Perhaps we’ve gotten to levels on some of these banks where it makes a ton of sense for larger banks to come in and pick them up for their geographic base and asset base.”
Reporting by Elinor Comlay and Matt Daily in New York, writing by Christopher Kaufman