Newspaper article The Florida Times Union

Wells Fargo Deal Likely Best for Wachovia Investors

Newspaper article The Florida Times Union

Wells Fargo Deal Likely Best for Wachovia Investors

Article excerpt


Considering the fact that Wachovia Corp. was trading in the $50s a year ago, Friday's $7-a-share buyout agreement from Wells Fargo might not look so good to shareholders. But when shareholders consider their other alternatives, they might have to consider themselves lucky to get $7.

The previous deal that Wachovia had worked out, to sell its banking operations to Citigroup, would have left shareholders with a lot less. After selling the banking operations, Wachovia would have remained as a stand-alone public company with two subsidiaries, a brokerage firm and an asset management company.

But most of Wachovia's value comes from its banking operations. According to a rough estimate from Keefe, Bruyette & Woods analysts, the earnings power of the brokerage and asset management units alone would have been anywhere between zero and 31 cents a share. In comparison, Wachovia's net income was $3.26 a share last year and $4.63 in 2006, before the credit crisis hit.

Citigroup's deal would have included assistance from the Federal Deposit Insurance Corp. The Wells Fargo deal has no government aid, but the fact that the FDIC was ready to step in and assist in a deal suggests that Wachovia was in danger of failing if it didn't find a buyout partner. So Wachovia shareholders pretty much have to take what they can get.


With all the turmoil in the markets recently, mainly focused on financial firms, it may surprise you to learn that bank stocks as a group actually did well during the third quarter this year. Keefe, Bruyette's index of 24 major bank stocks rose by 16 percent in the July-September period.

Of course, that followed a 49 percent plunge in the bank index from June 2007 through June 2008.

If you pay attention to the Bloomberg Jacksonville stock index, you can guess that the index of local stocks followed a similar pattern. That index, compiled by The Times-Union and Bloomberg News, consists of 50 companies either headquartered in Jacksonville or with major operations in the area. With so many major financial firms having large operations centers here, the Bloomberg Jacksonville index is heavily influenced by the fate of the financial industry. …

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