Wells: A Model in M&As, Wachovia Deal Suggests

It's interesting to see how right Wells Fargo seems to have gotten it, in its dramatic acquisition of Wachovia Corp.-based on today's surprise, record quarterly profit projection. Thanks to Wachovia, Wells said it expects to report a $3 billion profit for the quarter ended March 31.Early last October, just days after it was announced that Citi would acquire the failed $812.4 billion-asset Charlotte, N.C., bank, Wells made a better offer to the government. The government would not have to underwrite Well's risk (the original Citi acquisition proposal would have capped the New York bank's losses at $42 billion) and Wells would pay about seven times more than the $2 billion-plus Citi had offered. By Oct. 10, Wells had won a legal battle with Citi (though some described it as tantamount to Citi suing the FDIC, Wachovia's receiver) to acquire Wachovia, and with it, the nation's largest coast-to-coast branch franchise for the West Coast victor. The combined entity, based in San Francisco, now has $1.3 trillion in assets.

It could be a different story now. It could be a story like Bank of America's. The Charlotte, N.C. bank seems to have overpaid for Merrill Lynch & Co., in another surprise acquisition last fall. (Merrill was expected to go to Lehman Bros., another New York investment bank). Bank of America CEO Ken Lewis recently said publicly that he regrets having taken $20 billion in government aid (TARP funding) to buy Merrill.

Others think more is at stake than a loss of independence Lewis's comments came amid talk of nationalizing banks, such as Bank of America ($1.95 trillion in assets) and Citi ($1.94 trillion in assets) as the only way to really deal with their toxic assets.

Echoing views expressed online, one analyst said Bank of America bought more bad debt than they realized in taking on Merrill. "They didn't know what they were doing. Why did they do it? Because of a dreadful need to become a power investment bank, but Merrill wasn't even a power investment bank".

Bank of America, lost $15.31 billion at Merrill in the final quarter of 2008 and ended the year having lost much of its asset lead on other domestic banks. Bank of America was the top U.S. bank by assets with $2.72 trillion in assets earlier 2008, down to $1.95 trillion by yearend.

The Merrill loss prompted the government to take an additional $20-billion stake in the bank, Bank of America said in its latest financial report.