The bank was able to double in size from its early 2009 acquisition of Wachovia, while avoiding the type of mortgage mess inherited by Bank of America (BAC) through its purchase of Countrywide in 2008. With a simpler balance sheet, Wells Fargo has also avoided the headline risk and drag on shares being suffered by JPMorgan Chase (JPM) from multiple federal investigations.
Wells Fargo on Oct. 3, 2008 announced an agreement to acquire Wachovia in an all-stock deal valued at roughly $15.1 billion at the time of the announcement. Wells Fargo's offer trumped a previous agreement by Citigroup (C) in September 2008 to acquire Wachovia for $2.16 billion, in a deal facilitated by the Federal Deposit Insurance Corp. Under the Citigroup deal, the FDIC would have provided loss-sharing protection on $312 billion in mortgage-related Wachovia assets.
The Wells Fargo acquisition of Wachovia was naturally favored by the FDIC, which would no longer be on the look for any losses on Wachovia's assets. Citigroup later sued Wells Fargo, which settled by paying Citi $100 million in November 2010.The acquisition was an amazing success, with Wells Fargo greatly increasing its earnings power, expanding its branch network to a national scope, becoming the nation's leading mortgage loan originator, and also a major competitor in retail brokerage. When announcing the Wachovia deal, Wells Fargo said it would "record Wachovia's credit-impaired assets at fair value." The deal was completed at the end of 2008, with Wells Fargo recording $37.2 billion in credit write-downs on $93.9 billion in "high risk loans" acquired from Wachovia. Along with the credit write-downs, Wells Fargo wrote-off $1.2 billion in Wachovia's unfortunately named "pick-a-pay" option-payment adjustable-rate mortgage loans, and set aside $4.2 billion in reserves on the remaining Wachovia loans. Wells Fargo during the fourth quarter of 2008 also took an aggressive approach to reserving for its own loan portfolio, for a total fourth-quarter 2008 provision for credit losses of $8.4 billion.
Wall Street Meltdown: Five Years Later:
- The Day Lehman Broke Wall Street
- God, Country, Lehman
- Well-Positioned JPMorgan Chase Still Stymied
- Bank of America Is Halfway Home
- 5 Years Later, Mortgage Market Still Needs Fannie Mae, Freddie Mac
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