A Wells Fargo-Wachovia merger: What it means

A potential acquisition of Wachovia Corp. by Wells Fargo & Co. would create the largest bank in the United States, surpassing Bank of America for that distinction.

San Francisco-based Wells Fargo (NYSE:WFC) has $609 billion in assets, $418 billion in net loans, $339 billion in deposits, $151 billion in mutual fund assets under management and 3,327 branches in 24 states. Charlotte, N.C.-based Wachovia (NYSE:WB) has $812 billion in assets, $485 billion in net loans, $448 billion in deposits, $107 billion in mutual fund assets under management and 3,348 branches in 21 states.

Most of Wells Fargo’s branches are west of the Mississippi. Most of Wachovia’s are east of the Mississippi, save for branches Wachovia acquired through its troubled 2006 acquisition of California-based Golden West Financial.

The combined company will have $1.37 trillion in assets, $713 billion in U.S. deposits and 6,675 bank branches, 12,227 ATMs, 26.2 million retail household customers and 15.7 online customers.

The combined bank will have a presence in 18 of the 20 largest metro areas. It will retain Wachovia’s number one ranking in the Philadelphia market, where it has $108 billion in deposits, according to Wells Fargo, a 15.1 percent marketshare, and 6,400 employees. Philadelphia will be the fifth-largest presence for the combined bank, behind New York, Los Angeles, Chicago and Miami.

Wells Fargo is one of the few major U.S. banks that has remained consistently profitable during the credit crisis, while Citigroup and Wachovia have struggled due to investments in mortgage-backed securities.

“Today's announcement creates one of the strongest financial firms in the world and is great for all Wachovia constituencies: our shareholders, customers, colleagues and communities,” Wachovia President and CEO Robert K. Steel said in a statement. “This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support. The market presence and composition of our businesses, along with our service-oriented cultures, are extraordinarily complementary and this combination creates great potential for sustained stability and growth.”

Wells Fargo and Wachovia will have the largest deposit base in the country, creating a coast-to-coast banking franchise for consumers.

Wells Fargo Chairman Dick Kovacevich said the merger combines Wachovia’s customer service culture with Wells Fargo’s sales and cross-selling culture.

“The best in service and the best in sales, an unbeatable combination,” Kovacevich said in a statement. “Wachovia’s brokerage and asset management businesses, which would have been left behind in the prior proposal, are tightly interwoven with Wachovia’s core banking business – and this agreement avoids the complexity and unavoidable loss of value in trying to separate them, which would have disrupted Wachovia’s team members and customers.”

Kovacevich said the combined company will have a strong presence in Charlotte, which will be the headquarters for the combined company’s East Coast retail and commercial and corporate banking business. St. Louis will remain the headquarters of Wachovia Securities. In addition, three members of the Wachovia Board will be invited to join the Wells Fargo & Co. board when the transaction is completed.

“We know this has been a time of great uncertainty for Wachovia team members and many of its customers as their company has gone through a very painful and challenging time of unprecedented change in our industry,” Wells Fargo President and CEO John Stumpf said. “We want to assure them we’ll do everything we can to make the integration of our operations as smooth as possible. An important measure of success for this integration will be our ability to retain as many of the talented Wachovia team members as possible so they can continue to provide outstanding service and financial advice to their customers and continue their careers with Wells Fargo.”

Wells Fargo did say there would be a $5 billion annual expense reduction with the majority of the synergies achievable by 2010. There will be $10 billion in merger costs for the deal, which is set to close in the fourth quarter.

Wells Fargo’s Chief Financial Officer Howard Atkins said acquiring Wachovia presents a unique opportunity to expand both its community and wholesale banking presence in current markets and enter some new markets. The combined company will have retail banks in 39 states and the District of Columbia. Wells Fargo now enters retail banking for first time in Pennsylvania, New Jersey, Delaware, Alabama, Connecticut, Florida, Georgia, Kansas, Maryland, Mississippi, New York, North Carolina, South Carolina, Tennessee, Virginia and Washington, D.C. Wells Fargo already has a presence in Alaska, Arizona, Arkansas (pending), California, Colorado, Idaho, Illinois, Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Washington, Wisconsin, and Wyoming.

In Pennsylvania, Wells Fargo inherits Wachovia’s third-ranked deposit marketshare with $20.6 billion, or 9.8 percent. In New Jersey, Wachovia is ranked first with $26.2 billion, or 20 percent.