Wells Fargo Snags Wachovia From Citi's Clutches

In a surprise move, Wells Fargo bested Citigroup's bid and snatched Wachovia as its prize. Wells Fargo agreed to pay $15.1 billion in stock for Wachovia, or roughly $7 a share, a significant improvement over Citi's $1 a share bid. Better yet, the Wells Fargo bid does not include any government guarantees. While Citi's bid included a promise from the FDIC to take a maximum of $270 billion in losses after Citi took the first $42 billion, Wells Fargo has indicated it has the stomach to swallow any potential future losses from Wachovia's ailing mortgage portfolio. This is proof that the market has the ability to find value in the banking sector without any need for a government bailout. Some might say that Wells Fargo waited to pounce on Wachovia until it was relatively assured of a bailout package passing in Congress. But then, it should've waited until the unpredictable House actually passed the legislation. Furthermore, Wells plans to issue $20 billion in additional equity to help finance the deal. With the stock near 52-week highs, issuing stock while the SEC short-sale ban in still in effect is brilliant and entirely predicatable. Any bank that doesn't take advantage of this window of opportunity to raise equity while the shorts are banished from trading should be immediately shorted when the ban expires.