Abstract
The following paper details the controversial merger that occurred between Wachovia and Wells Fargo in October of 2008. The San Francisco based firm Wells Fargo purchased Wachovia Securities, headquartered in South Carolina, for the sum of 15.4 billion, a move that delighted Wachovia’s investors but angered officials at Citigroup, the government backed firm who had all but inked a deal to take over Wachovia at the time that the merger was announced.
Wachovia-Wells Fargo Merger
In October of 2008 Wells Fargo, the wealth management institution headquartered in San Francisco, paid 15.4 billion to purchase Wachovia, the South Carolina based securities firm (Enrich & Fitzpatrick 2008). At the time the federal government had been actively brokering a “shotgun marriage” between the troubled Wachovia and the New York based firm Citigroup, when Wells Fargo stepped in with a better offer (Enrich & Fitzpatrick 2008).
The Citigroup offer included provisions for the federal government to absorb hundreds of billions of dollars in Wachovia’s projected losses, yet the deal held virtually no interest for Wachovia’s investors, who would have been all but wiped out by the Citigroup buy out (Enrich & Fitzpatrick 2008). This particular deal stands out in the financial climate of the American recession, as the Wells Fargo Wachovia merger did not rely on any government funding or intervention (Enrich & Fitzpatrick 2008).
The merger began officially in January 2009. In 2008, Wells Fargo placed 23rd among all underwriting deals reached at the senior level; Wachovia, meanwhile, sat in the 12th spot, according to Phil Smith, Wells Fargo’s official in charge of government and institutional banking (McGee 2010).
Once the merger occurred, Wells Fargo jumped into the top 10; according to McGee (2010), Wells Fargo “ran the books on 378 issues worth $11.2 billion in 2009, ranking ninth as senior manager…and [in 2010] it…maintained the ninth spot as it senior managed 67 issues worth $2.4 billion” (McGee 2010).
Wells Fargo’s main goal following the merger, according to Phil Smith, is “to expand the investment banking arm so that its footprint is comparable to the commercial business, which is one of the top two in the country…Our goal is to make our investment bank as prolific – in other words, to be as good in the investment banking space as we are in the traditional space” (McGee 2010).
The merger occurred in a climate of uncertainty in many of the largest brokerage houses and banks in the country. According to Garmhausen (2009), not only have these firms endured staggering losses, but their employees have faced unflattering press and negative “headlines about their parent companies’ failings” (Garmhausen 2009).
Bad press has forced advisors to “field client questions about the bad news and the market meltdown. Perhaps toughest of all, advisers have to grapple with the uncertainty of where they stand as the industry consolidates around them” (Garmhausen 2009).
Once the merger was in full swing, Wells Fargo had to decide how it would manage the transfer of clients, particularly in the online banking realm. According to Marlin (2009), “some banks have forced customers to change bank accounts, re-enroll in online banking and set up their bill pay accounts over again,” a risky proposition which can lead to client loss (Marlin 2009).
In the current climate, strategically sound banks “shield customers from the upheavals that can occur when two large organizations come together” (Marlin 2009). Wells Fargo has the option to “allow customers from the legacy bank to operate in their familiar online banking environment, while deploying software that transforms legacy data into its own formats” (Marlin 2009).
The Wells Fargo Wachovia merger remains important as proof positive that there “is still a market, albeit limited, for private takeovers of these institutions, one that does not place taxpayer dollars at risk” (Enrich & Fitzpatrick 2008).
References
Enrich, D. & Fitzpatrick, D. (2008, October 8). Wachovia Chooses Wells Fargo, Spurns Citi. The Wall Street Journal. A1.
Garmhausen, S. (2009). Advisors at Top Banks Face Bad Press, Merger Turmoil. American Banker, 174,(129), 8.
McGee, P. (2010). Mergers and Acquisitions: Wells Fargo Takes a Big Step toward Merger Milestone. The Bond Buyer, 371(33287), 16.
Marlin, S. (2009). Integration: Move Customers, but Don’t Herd Them; Wells Fargo and Wachovia are Neck Deep in Post-Merger Integration Planning for their Online Channels. Attrition Levels Hang in the Balance. Bank Technology News, 22(4), 24.