Merger Case Need for high quality.

MY Topic: IBM’s acquisition of Apptio closed on August 10, 2023

Please find attached details and samples about the assignment

Need for high quality.

This assignment should consist of an analysis, presentation and write-up of a current or recently completed (no earlier than June 2022) merger or acquisition.

Case write-ups should average 7-10 double spaced pages Can certainly be longer than 10 pages if needed

The case presentation (PowerPoint), write-up and recording should contain the following information:

Background information on the companies involved in the merger or acquisition,

Type of merger or acquisition (Horizontal, Vertical, Conglomerate, etc.)

Reasons for the merger or acquisition,

Review of the expected economics of the merger or acquisition,

Discussion of the expected benefits of the merger or acquisition,

Discussion of any potential negative ramifications of the merger or acquisition,

An analysis of the expected impact on the industry or industries impacted by the merger or acquisition.

Provide as much of the required disclosures of FASB ASC 805-10-50-2 as possible in your write-up (See Pages 27 – 29 of the textbook)

Please reference the sources used in researching the case

AC
BUSINESS COMBINATIONS
GUIDELINES FOR MERGER CASE PRESENTATIONS
AND
MERGER CASE WRITE-UPS
●
This assignment should consist of an analysis, presentation and write-up
of a current or recently completed (no earlier than June 2022)
merger or acquisition.
●
Case write-ups should average 7-10 double spaced pages
Can certainly be longer than 10 pages if needed
●
The case presentation (PowerPoint), write-up and recording should
contain the following information:
Background information on the companies involved in the merger
or acquisition,
Type of merger or acquisition (Horizontal, Vertical, Conglomerate,
etc.)
Reasons for the merger or acquisition,
Review of the expected economics of the merger or acquisition,
Discussion of the expected benefits of the merger or acquisition,
Discussion of any potential negative ramifications of the merger or
acquisition,
An analysis of the expected impact on the industry or industries
impacted by the merger or acquisition.
Provide as much of the required disclosures of FASB ASC 805-1050-2 as possible in your write-up (See Pages 27 – 29 of the
textbook)
●
Please reference the sources used in researching the case
●
Every group member should participate in the case presentation in some
way. Group size is 3 per group.
●
Use visuals (Power Point, overheads, etc.) as appropriate
●
Allow 20 – 30 minutes for the presentation and 5 minutes for questions
●
Because of the number of groups and students in the class this semester,
the Merger Case Presentation should be pre-recorded using MP4 ,
Canvas Studio, or some other product such as Microsoft Teams
●
On April 23, at least 1 member of each group should share briefly with the
rest of the class regarding you Merger Case
●
The required deliverables that should be uploaded to the Merger Case
drop-box are:
–
Case Write-up in WORD,
PowerPoint Presentation
Recording file for the group’s presentation (using the PowerPoint file
to guide the recorded presentation).
AC
BUSINESS COMBINATIONS
GUIDELINES FOR MERGER CASE PRESENTATIONS
AND
MERGER CASE WRITE-UPS
●
This assignment should consist of an analysis, presentation and write-up
of a current or recently completed (no earlier than June 2022)
merger or acquisition.
●
Case write-ups should average 7-10 double spaced pages
Can certainly be longer than 10 pages if needed
●
The case presentation (PowerPoint), write-up and recording should
contain the following information:
Background information on the companies involved in the merger
or acquisition,
Type of merger or acquisition (Horizontal, Vertical, Conglomerate,
etc.)
Reasons for the merger or acquisition,
Review of the expected economics of the merger or acquisition,
Discussion of the expected benefits of the merger or acquisition,
Discussion of any potential negative ramifications of the merger or
acquisition,
An analysis of the expected impact on the industry or industries
impacted by the merger or acquisition.
Provide as much of the required disclosures of FASB ASC 805-1050-2 as possible in your write-up (See Pages 27 – 29 of the
textbook)
●
Please reference the sources used in researching the case
●
Every group member should participate in the case presentation in some
way. Group size is 3 per group.
●
Use visuals (Power Point, overheads, etc.) as appropriate
●
Allow 20 – 30 minutes for the presentation and 5 minutes for questions
●
Because of the number of groups and students in the class this semester,
the Merger Case Presentation should be pre-recorded using MP4 ,
Canvas Studio, or some other product such as Microsoft Teams
●
On April 23, at least 1 member of each group should share briefly with the
rest of the class regarding you Merger Case
●
The required deliverables that should be uploaded to the Merger Case
drop-box are:
–
Case Write-up in WORD,
PowerPoint Presentation
Recording file for the group’s presentation (using the PowerPoint file
to guide the recorded presentation).
Wells Fargo and Wachovia
Merger
Presentation – March 12, 2009
Group Members:
Business Combinations AC
Spring 2009
2
Contents
Overview ____________________________________________________________________ 4
Background of Merging Companies ______________________________________________ 4
Type of Merger _______________________________________________________________ 5
Reasons for the Merger ________________________________________________________ 5
Expected Economics ___________________________________________________________ 6
Expected Benefits _____________________________________________________________ 7
Potential Risks _______________________________________________________________ 8
Stock value decline _________________________________________________________________ 8
Credit rating downgrade ____________________________________________________________ 9
Undeveloped Synergies _____________________________________________________________ 9
Industry Impact _____________________________________________________________ 11
Disclosures _________________________________________________________________ 12
Goodwill Section _____________________________________________________________ 13
Detailed Consolidated Financial Information ______________________________________ 14
Current Results ______________________________________________________________ 16
APPENDICES ________________________________________________________________ 18
September 30, 2008 Pro Forma Condensed Combined Financial Information _________________ 19
December 31, 2008 Pro Forma Condensed Consolidated Financial Information _______________ 24
Aggregate Performance and Condition Data for All U.S. Banks _____________________________ 28
Value Analysis____________________________________________________________________ 29
Works Cited ________________________________________________________________ 30
3
Overview
On December 23, 2008 Wachovia, a Charlotte, NC based corporation announced that its shareholders
approved a merger with the San Francisco based Wells Fargo vowing that the combination would
provide superior growth and long-term value to its shareholders, customers, employees and
communities. The merger will create a financial services company with a presence in 39 states with
11,005 branches and 12,263 ATM’s. The merger consideration is that Wachovia’s common stock will be
converted into 0.1991 of a share of Wells Fargo common stock. (Securities and Exchange Commission,
2009)
Background of Merging Companies
Wells Fargo & Company (NYSE: WFC) is a diversified financial services company with $622 billion in
assets, providing banking, insurance, investments, mortgage and consumer finance through almost
6,000 stores and the internet (wellsfargo.com) across North America and internationally. Wells Fargo
Bank, N.A. has the highest possible credit rating, “Aaa,” from Moody’s Investors Service and the highest
credit rating given to a U.S. bank, “AA+,” from Standard & Poor’s Ratings Services.
Wachovia Corporation (NYSE:WB) is one of the nation’s largest diversified financial services companies,
with assets of $764.4 billion and market capitalization of $7.6 billion at September 30, 2008. Wachovia
provides a broad range of retail banking and brokerage, asset and wealth management, and corporate
and investment banking products and services to customers through 3,314 retail financial centers in 21
states from Connecticut to Florida and west to Texas and California, and nationwide retail brokerage,
mortgage lending and auto finance businesses. Globally, its clients are served in selected corporate and
institutional sectors and through more than 40 international offices. Its retail brokerage operations
4
under the Wachovia Securities brand name manage more than $1.0 trillion in client assets through
14,600 financial advisors in 1,500 offices nationwide. (Securities and Exchange Commission, 2008)
Type of Merger
The merger between Wachovia and Wells Fargo is a horizontal merger in which the two companies are
competitors who provide identical products and services in the same geographic area.
Reasons for the Merger
Wachovia’s reasons for entering into the merger agreement with Wells Fargo instead of Citigroup:
•
•
•
•
•
•
•
Wells Fargo’s strong balance sheet, asset quality and risk management have allowed it to
operate through the 2007-2008 financial crisis with relatively less negative impact than most
large U.S. financial institutions.
Wells Fargo’s business and operations complement those of Wachovia and their financial
condition and asset quality are very sound. Their earnings and prospects should result in
the combined companies having superior future earnings and prospects compared to
Wachovia’s earnings and prospects on a stand-alone basis.
The assumption of all of Wachovia’s preferred stock and debt by Wells Fargo and Wells
Fargo’s higher debt rating provided greater protection to Wachovia’s debt holders.
The likelihood that the FDIC would place Wachovia’s banking subsidiaries into receivership if
a transaction were not announced on October 3, 2008.
The strength of Wells Fargo’s capital condition and its willingness to provide interim liquidity
to Wachovia pending completion of the merger.
The considerable contingent liabilities related to acquired assets and subsidiaries that
Citigroup proposed to be left with Wachovia.
The exchange ratio provided by Wells Fargo was substantially greater value to Wachovia’s
common shareholders than the Citigroup proposal.
Wells Fargo’s reasons for entering into the merger agreement with Wachovia:
5
•
its knowledge of the current and prospective environment in which Wells Fargo and
Wachovia operate, including economic and market conditions;
•
its assessment of Wachovia’s businesses, prospects, franchises, core earnings generation
ability, assets and liabilities and its view of the attractive growth and demographic
characteristics of Wachovia’s existing markets and businesses;
•
the review by the Wells Fargo board of directors with its advisors of the structure of the
merger and the financial and other terms of the merger and share exchange agreement;
•
the expectation that the complementary nature of the respective customer bases,
geographic footprints, business products and skills of Wells Fargo and Wachovia may result
in substantial opportunities to distribute products and services throughout North America to
a broader customer base and across businesses and to enhance the capabilities of both
companies, including the expected benefits from adding a banking franchise in areas where
Wells Fargo currently operates non-banking businesses;
•
the fact that the combined company will have a significantly enhanced presence in 39
U.S. States, including leading deposit franchises in many of those states and in many of the
nation’s 20 largest Metropolitan Statistical Areas;
•
Wells Fargo’s view of the value inherent in Wachovia’s banking, brokerage and asset
management businesses, including its strong customer service and community-oriented
culture and the capabilities of its employees;
•
the unique opportunity presented by the chance to acquire a franchise of Wachovia’s
quality, size and scope, its assessment of the pro forma capital position, financial condition
and results of operations of the combined company, and the expectation that the
transaction will exceed Wells Fargo’s internal rate of return goal and be accretive to Wells
Fargo’s earnings per common share by 2011;
•
the potential expense saving opportunities currently estimated by Wells Fargo’s
management to be approximately $5 billion per year on a pre-tax basis when fully realized,
as well as the possibility of potential incremental revenue opportunities;
•
the historical and current market prices of Wells Fargo common stock and Wachovia
common stock;
Expected Economics
According to its CFO, Wells Fargo used very conservative assumptions in evaluating the potential
acquisition of Wachovia Bank. In a statement to shareholders, CFO Howard Akins reiterated that Wells
Fargo only considers acquisitions that add to earnings per share no later than the third year after
purchase and earn an internal rate of return of at least 15 percent. The CFO indicated that this
acquisition exceeds all of Wells Fargo’s financial requirements. As part of this acquisition, Wells Fargo
expects to realize approximately $5 billion per year in savings. Additionally, Wells Fargo fully expects an
increase in incremental revenue given the existing banking network and customer base being acquired
from Wachovia. (“Wells Fargo, Wachovia Agree to Merge”)
6
Expected Benefits
When Wells Fargo completed its merger with Wachovia Corporation, it created the United States’
premier coast-to-coast diversified financial services franchise and most extensive banking network.
Wells Fargo team members serve millions of customers across North America through 11,005 stores;
12,260 ATMs; wellsfargo.com and Wells Fargo PhoneBank. Wells Fargo is number one in the United
States in community banking presence (6,653 stores), small business lending, agricultural lending,
commercial real estate lending, commercial real estate brokerage and middle market commercial
banking. They are number two in banking deposits in the United States, home mortgage originations
and servicing, retail brokerage, and debit cards. Additionally, with respect to mutual funds, Wells Fargo
will have $255 billion assets under management making it the 12th largest mutual fund family. The
Wells Fargo Insurance Services will become the World’s 5th largest insurance broker with $1.7 billion in
revenue. (“Wells Fargo and Wachovia: A Combined Premier Financial Services Company”)
As stated above, this combination creates the largest, most extensive banking store network in the
United States. As of September 2008, Wells Fargo operated 5,897 banking stores and Wachovia
operated 5,108 for a total of 11,005. Of this total, Wells Fargo operated 3,339 stores and Wachovia
operated 3,314 stores that offered full retail banking services. Given the geographic location of these
two companies, there is very little overlap of stores since Wachovia was primarily an East coast franchise
with Wells Fargo being a West coast franchise. However, there is some overlap of branches with the
most significant being in California and Texas. Due to this overlap, Wells Fargo could potentially have to
divest some of the branches. However, the amount of branches being divested is not expected to be
significant.
This banking network has given the new Wells Fargo many competitive advantages. Outside of the
advantages already mentioned, the combined company will be the number one small business lender
7
and provider of cash management services and top ten wealth manager. Additionally, the new company
will combine one of the best cross-sell banks (Wells Fargo) with a bank that has consistently been rated
number one in customer service (Wachovia Bank).
Potential Risks
Mergers come with risk. Prior to merging, a company generally assesses known risks to determine if the
risk is worth the reward. However, this assessment is based on projected outcomes. If these outcomes
do not materialize, the company may experience adverse affects – risks. The Wells Fargo and Wachovia
merger could experience the following.
•
Stock value decline
•
Credit rating downgrade
•
Undeveloped synergies
Stock value decline
Wells Fargo capital stock could decline if it fails to realize the expected benefits of the merger. The
merger involves the integration of the business of Wachovia and Wells Fargo. This integration could
“result in the loss of key Wachovia employees, the disruption of Wachovia’s ongoing business or
inconsistencies in standards, controls, procedures and policies that adversely affect Wachovia’s ability to
maintain relationships with customers and employees. As with any financial institution merger, there
also may be disruptions that cause Wachovia to lose customers or cause customers to take deposits out
of Wachovia’s banks.” (Wachovia Corporation) Wells Fargo could also incur more credit losses from
Wachovia’s loan portfolio than expected. This risk is highlighted by the fact that its customers’ credit
card balances increased by 26 percent in the last quarter of 2008, which could leave it holding stacks of
unpaid credit card bills if job losses continue. (Wells Fargo-Wachovia merger completed)
8
Credit rating downgrade
Wells Fargo’s credit rating could be downgraded. Periodically its credit rating is reviewed and could be
subject to downgrade. Wells Fargo currently has a rating of “Aaa” from Moody’s Investors Service. This
is Moody’s highest investment grade. Wells Fargo also has the highest investment grade from Standard
& Poor’s Ratings Service at “AA+”. The credit rating is a very important factor in determining Wells
Fargo’s cost of borrowing. “Following the announcement of the Wachovia merger, Moody’s and S&P
placed Wells Fargo on their respective negative credit watch lists. Rating agencies base their ratings on
many quantitative and qualitative factors, including capital adequacy, liquidity, asset quality, business
mix, and level and quality of earnings, and there can be no assurance that Wells Fargo will maintain the
aforementioned credit ratings” while completing the merger. (Wachovia Corporation) The factors that
affect the capital stock price are also considered for this risk factor. In addition the rating agencies
consider the economic climate in which the business participates. As such, the news that the credit
crisis has deepened with home prices in Charlotte recording their worst annual downfall on record in
October may affect Wells Fargo’s credit rating. Wells Fargo has also exposed itself to Wachovia’s
portfolio of mortgages in California and Florida, which claims the second-highest foreclosure rate in the
country. (Wells Fargo-Wachovia merger completed)
Undeveloped Synergies
Thirdly, Wells Fargo may not develop the expected synergies which drove the merger’s economic
feasibility. To accomplish synergism, Wells Fargo must meld “branch networks and payment systems”.
Large banks like Wells Fargo and Wachovia sometimes encounter problems consolidating highly
specialized units, such as risk-management and trading desks (Shean), which may slowdown or limit
Wells Fargo’s ability to achieve part or all of the synergies.
9
Not only does Wells Fargo have to meld technology together but they must meld personnel together as
well. Contending with cultural differences requires constant communication. Lack of communication
can cause the loss of key personnel and reduce possible synergies.
Synergies may develop, but too slowly for investors. To combat this risk, Wells Fargo may introduce yet
another risk – pushing too far, too quickly. If Wells Fargo pushes forward ill-prepared with creating and
setting into motion teams to tackle goals set to meet investor demands, glitches may develop causing
Wells Fargo to lose business from frustrated customers.
Other reasons Wells Fargo may not realize the expected synergies are:
•
lack of a clear understanding of mutual expectations;
•
lack of an iron-clad commitment to succeed (at every level);
•
significant cultural or values differences;
•
inappropriate behavior (failure to act with integrity and due process);
•
inability to agree on proposed governance or management structures;
•
failure to understand and adapt to “new style” of management; and/or
•
adoption of a “we” vs. “them” approach, rather than keeping the focus on establishing mutual
interests. (What are the greatest risks within a Merger/Acquisition?)
It is too early in the merger process to determine if Wells Fargo will develop the expected synergies or
experience a lower stock price or a downgrade in its credit rating caused by the merger. But as outlined
above, Wells Fargo has a minefield of risks to work through to achieve success in this merger.
10
Industry Impact
The banking industry is in a state of turmoil. Evidence of this fact is splashed all over the nightly news as
Congress uses tax payers’ dollars to bail it out. Key bank financial indicators signify the magnitude of the
industry’s struggles. Return on equity reduced from 13% in 2006 to 2.11% in 2008 while net-charge offs
for loans increased from .41 to 1.31.1 Wachovia, the fourth largest bank, was one on the brink of failure,
so much that the FDIC was forcing a receivership unless Wachovia announced a suitable acquirer by
October 2008. Such a large failure could have caused an even more unstable banking industry and
economy. However, as a result of Wells Fargo’s rescue, the industry is perhaps more stable than it
otherwise would be.
This merger also created a mega-bank within the banking industry. Wells Fargo, Bank of America and JP
Morgan are now unrivaled powers with 30% of the industry captured. Wells Fargo provides more
services across a much broader geography. Their customers will benefit from greater convenience,
communities will benefit because of increased capital in the communities in which Wells Fargo does
business and the shareholders will benefit because of the growth opportunities created by the merger.
Though these traits seem positive on the surface, Eric Dash, a columnist with the New York Times, brings
to light the concern of monopolistic pricing of banking products (loans) and services:
“Together, those three banks (Bank of America, JPMorgan Chase and Wells Fargo) would
be so large that they would dominate the industry, with unrivaled power to set prices
for their loans and services. Given their size and reach, the institutions would probably
come under greater scrutiny from federal regulators. Some small and midsize banks,
already under pressure, might have little choice but to seek out suitors.”
1
2006-2008 Aggregate performance and condition data for all U.S. banks is provided in appendix C
11
“The impact will be felt on Main Street, Wall Street and in Washington. While the
mergers may restore confidence in the banking industry, they also leave a handful of big
lenders to determine fees and interest rates on everything from home mortgages to
credit cards to checking accounts. Some small and midsize banks may be unable to
compete with these behemoths.” (Dash)
There is no doubt that a large portion of the nation’s banking industry is in the hands of a few giant
lenders. However, financial performance indicators suggest smaller banks outperform mega-banks. In
2008 large banks wrote off 1.31% of loans while smaller banks wrote off 0.46% of loans. Small banks
return on equity was significantly more than large banks as well, 2.8% vs. 2.11%. Given these facts, it is
unlikely the mega-bank will have a large impact on smaller banks success.
Disclosures
Though this merger was not consummated under the jurisdiction of SFAS 141r, the following section
outlines its major required disclosures.
Wells Fargo acquired Wachovia Corporation on December 31, 2008 by purchasing 100% of its voting
stock. There were no contingent considerations identified. Based on September 30, 2008 prospectus
pro forma statements, Wells Fargo paid goodwill of $14.5 billion for intangible assets assumed to
include existing customers, existing banking network, and existing personnel.
Wells Fargo decided to use the purchase method of accounting to record the consolidation. It also
effected a merger date of December 31, 2008 allowing it to account for the consolidation under SFAS
141 instead of SFAS 141R as mentioned above. The key difference in using SFAS 141 instead of SFAS
141R in this consolidation is that Wells Fargo was not required to record all contingent assets and
liabilities, just probable. There were no identified contingent assets or liabilities in the merger
transaction between Wells Fargo and Wachovia.
12
Finally the following is a table of the major class of assets and liabilities acquired by Wells Fargo based
on the September 30, 2008 prospectus pro forma data.
MAJOR CLASS OF ASSETS AND LIABILITIES ACQUIRED (IN MILLIONS)
CURRENT ASSETS
NET LOANS
GOODWILL
OTHER
TOTAL ASSETS ACQUIRED
$ 242,855
$ 426,787
$ 14,508
$ 49,719
$ 733,869
TOTAL DEPOSITS
OTHER DEBT
TOTAL LIABILITIES ASSUMED
$ 417,071
$ 292,595
$ 709,666
NET ASSETS ACQUIRED
$ 24,203
Goodwill Section
Based on the September 30, 2008 financial statements included in the prospectus, Wells Fargo will
recognize approximately $14.5 billion in goodwill with the acquisition of Wachovia Bank. The definition
of goodwill is “an intangible asset equal to the excess cost required to acquire the business over the fair
market value of all other assets”. By definition, goodwill is due to unidentifiable assets. However, we
have speculated as to the goodwill acquired with this transaction. The most significant intangible asset
acquired is the workforce of Wachovia Bank. Wachovia had approximately 200,000 employees that
have significant banking experience. These employees built Wachovia into one of the premier financial
institutions in the United State in customer service, ranking number one for six years in a row. With the
addition of Wachovia, Wells Fargo added a significant distribution network east of the Mississippi River.
Wachovia operated in fifteen states in the East, which gave Wells Fargo access to growth markets in the
United States. Approximately, 80% of the US population is within the footprint of Wachovia Bank.
13
Additionally, Wells purchased Wachovia’s number one seat for the Southeast in Middle Market Banking.
(“Wells Fargo and Wachovia: A Combined Premier Financial Services Company”)
Detailed Consolidated Financial Information
The unaudited pro forma condensed combined financial information includes estimated adjustments
made by management to record assets and liabilities of Wachovia at fair values. The costs associated
with the merger are estimated at 7.9 billion dollars before tax. The costs include: systems integration,
customer conversions, employee-related expense, site consolidations, signage, and name changes. The
unaudited pro forma condensed combined financial information does not reflect any benefit expected
from revenue enhancements or derived from potential cost savings related to the merger. Although,
management anticipates revenue enhancements and annual cost savings of approximately $5 billion
before taxes that will result from the merger, there can be no assurance that these items will be
achieved. (Securities and Exchange Commission, 2008)
The following pro forma adjustments have been reflected in the unaudited pro forma condensed
combined financial information. All adjustments are based on September 30, 2008 assumptions and
valuations. The September 30, 2008 pro forma statements are included in the appendixes as well as the
December 31, 2008 financial statements.
14
BALANCE SHEET ADJUSTMENTS
Ref
A
Account
Securities available for
sale and preferred
securities
B
Loans
C
Allowance for Loan
Losses
D
Premises and equipment
Amount
Explanation
To reflect Wells Fargo’s investment in
$ .3 Billion Wachovia that will be eliminated in
consolidation.
Credit losses for bad loans, to adjust to
$ 50.6 Billion current interest rates, and to reverse prior
purchase accounting adjustments.
To reflect the reduction of Wachovia’s
$ 10.4 Billion
existing allowance for loan losses.
$ .5 Billion Fair value adjustments for real property.
To reflect the write-off of Wachovia’s
historical goodwill of $18.3 billion &
establish new goodwill of $14.5 billion as a
result of the merger.
To reflect an increase in identifiable
intangibles, a decrease of fair value
adjustments for pension plan assets and
bank owned life insurance, an increase
related to purchase accounting, and a
decrease against Wachovia’s recorded
deferred tax asset.
Fair Value adjustments to current interest
rates and reversal of prior purchase
accounting adjustments.
Increases for exit reserves, direct acquisition
costs, Wachovia’s recorded uncertain tax
position, and a decrease to offset Well
Fargo’s net deferred tax liability.
E
Goodwill
$ 3.8 Billion
F
Other Assets
$ 13.3 Billion
G
Interest-Bearing Deposits
$ 1.8 Billion
H
Other Liabilities
$ 2.3 Billion
I
Long-Term Debt
$ 4.2 Billion To reflect current interest rates and spreads.
Total Stockholders’ Equity
To reflect the purchase price of $24.5 Billion
and the elimination of $.3 Billion in
$ 25.8 Billion
Wachovia preferred stock owned by Wells
Fargo.
J
15
INCOME STATEMENT ADJUSTMENTS
Ref
K
Account
Interest Income from
Securities Available for
Sale
Amount
$ 0.9 Billion
L
Interest Income from
Loans
M
Interest Expense from
Deposits
N
Interest Expense from
Long-Term Debt
$ 0.8 Billion
O
Intangible Amortization
Expense
$ 1.3 Billion
P
Income Tax Expense
$ 0.04 Billion
$ 2.6 Billion
Explanation
Adjusted to estimate the increase of
discount on the par value of securities in
excess of fair value.
To reflect the estimated increase of
purchase accounting adjustments related to
current interest rates.
Adjusted to estimate amortization of
accounting adjustments related to current
interest rates.
To reflect the estimated increase of
purchase accounting adjustments related to
current interest rates.
Adjusted to estimate the amortization of
incremental identifiable intangible assets
recognized.
The federal tax rate of 35% is adjusted using
the 2008 income tax benefit and 2007
income tax expense to arrive at a
consolidated effective tax rate.
Current Results
So where does all this leave Wells Fargo. Wells Fargo, as illustrated by the previous information,
appears to be financially sound and able to digest the acquisition of the weakening Wachovia
Corporation. As of March, 2009 Wells Fargo reported “the integration of Wachovia’s operations is
proceeding as planned and that the bank is on track to save $5 billion annually as a result of the
deal.”(Lepro) It also reported that the total integration costs are expected to be less than originally
projected. In another effort to save money, Wells has also suspended bonuses for its top executives.
16
17
APPENDICES
18
APPENDIX A
September 30, 2008
Pro Forma Condensed Combined Financial Information
19
WELLS FARGO AND WACHOVIA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
BALANCE SHEET
SEPTEMBER 30, 2008
(In millions)
ASSETS
Cash and due from banks
Federal funds sold,
securities purchased under
resale agreements and
other short-term
investments
Trading assets
Securities available for sale
Mortgages held for sale
Loans held for sale
Loans
Allowance for loan losses
Net loans
Mortgage servicing rights:
Measured at fair value
(residential MSRs)
Amortized
Premises and equipment,
net
Goodwill
Other assets
Total assets
LIABILITIES
Noninterest-bearing
deposits
Interest-bearing deposits
Total deposits
Short-term borrowings
Wells
Fargo
Wachovia
Adjustments
$ 12,861
8,093
$ 22,233
12,187
—
—
9,097
86,882
18,739
635
411,049
56,000
107,693
2,491
6,756
482,373
—
(294)
—
—
(50,607)
10,372
(7,865)
403,184
(15,351)
467,022
(40,235)
19,184
628
—
433
5,054
938
7,031
—
538
13,520
44,679
$622,361
18,353
63,046
$764,378
(3,845)
13,327
(30,509)
$ 89,446
$ 55,752
—
264,128
353,574
85,187
363,088
418,840
67,867
1,769
1,769
—
$
Pro Forma
Wells Fargo
before
Stock
Issuances
Stock
Issuances
Pro Forma
Wells Fargo
35,094
20,280
—
—
65,097
194,281
21,230
7,391
842,815
—
—
—
—
—
—
65,097
194,281
21,230
7,391
842,815
(12,844)
(12,844)
829,971
—
829,971
19,812
—
19,812
1,371
12,623
—
—
1,371
12,623
28,028
121,052
$ 1,356,230
—
—
—
28,028
121,052
$ 1,356,230
$ 145,198
—
$ 145,198
G
628,985
774,183
153,054
—
—
628,985
774,183
115,721
$
A
B
C
D
E
F
Accrued expenses and
other liabilities
Long-term debt
Total liabilities
29,293
44,318
(2,294)
H
71,317
107,350
575,404
183,350
714,375
(4,184)
(4,709)
I
286,516
1,285,070
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
625
5,788
8,348
40,853
9,825
7,124
59,883
(294)
(6,415)
(45,920)
22,465
A,J
J
J
J
10,156
6,497
22,311
40,853
4,364
J
(37,333)
—
—
$
35,094
20,280
71,317
286,516
1,247,737
(37,333)
22,674
781
13,878
—
32,830
7,278
36,189
40,853
—
(2,783)
—
(5,207)
—
(667)
37,333
—
108,493
$ 1,356,230
(22,465)
Cumulative other
comprehensive income
(loss)
Treasury stock
(2,783)
(4,364)
(2,783)
—
—
(5,207)
—
Unearned ESOP shares
Total stockholders’ equity
Total liabilities and
20
(5,207)
(667)
46,957
$622,361
50,003
$764,378
—
$
(25,800)
(30,509)
(667)
71,160
$ 1,356,230
stockholders’ equity
21
WELLS FARGO AND WACHOVIA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
SEPTEMBER 30, 2008
Wells
Fargo
(In millions, except per share amounts)
INTEREST INCOME
Trading assets
Securities available for sale
Mortgages held for sale
Loans held for sale
Loans
Other interest income
$
126
3,753
1,211
34
20,906
140
Wachovia
$
Pro Forma
Wells
Fargo
before
Stock
Issuances
Adjs
1,508
4,547
151
365
20,220
1,434
—
873
—
—
2,628
—
$
K
L
Stock
Issuances
1,634
9,173
1,362
399
43,754
1,574
—
—
—
—
—
—
Pro Forma
Wells
Fargo
$
1,634
9,173
1,362
399
43,754
1,574
Total interest income
26,170
28,225
3,501
57,896
—
57,896
INTEREST EXPENSE
Deposits
Short-term borrowings
Long-term debt
3,676
1,274
2,801
7,348
1,330
5,514
—
—
826
11,024
2,604
9,141
—
(703)
—
11,024
1,901
9,141
Total interest expense
7,751
14,192
826
22,769
(703)
22,066
NET INTEREST INCOME
Provision for credit losses
18,419
7,535
14,033
15,027
2,675
—
35,127
22,562
703
—
35,830
22,562
Net interest income (loss) after
provision for credit losses
10,884
(994)
2,675
12,565
703
13,268
2,387
2,263
1,747
1,562
2,720
365
1,493
316
2,102
7,253
513
815
213
174
239
(2,991)
—
—
—
—
—
—
—
—
4,489
9,516
2,260
2,377
2,933
539
1,732
(2,675)
—
—
—
—
—
—
—
—
4,489
9,516
2,260
2,377
2,933
539
1,732
(2,675)
(148)
272
—
124
—
124
1,277
(1,915)
—
(638)
—
(638)
Total noninterest income
13,982
6,675
—
20,657
—
20,657
NONINTEREST EXPENSE
Salaries
Incentive compensation
Employee benefits
Equipment
Net occupancy
Operating leases
Goodwill impairment
Intangible amortization
Other
6,092
2,005
1,666
955
1,201
308
—
139
4,473
4,543
4,293
1,348
879
1,137
86
24,846
296
6,374
—
—
—
—
—
—
—
1,337
—
10,635
6,298
3,014
1,834
2,338
394
24,846
1,772
10,847
—
—
—
—
—
—
—
—
—
10,635
6,298
3,014
1,834
2,338
394
24,846
1,772
10,847
Total noninterest expense
16,839
43,802
1,337
61,978
—
61,978
NONINTEREST INCOME
Service charges on deposit accounts
Trust and investment fees
Card fees
Other fees
Mortgage banking
Operating leases
Insurance
Net gains (losses) on debt securities
available for sale
Net gains (losses) from equity
investments
Other
22
N
O
Wells
Fargo
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE
(BENEFIT)
Income tax expense (benefit)
Wachovia
Adjs
8,027
(38,121)
1,338
2,638
(4,844)
(39)
Pro Forma
Wells
Fargo
before
Stock
Issuances
Stock
Issuances
Pro Forma
Wells
Fargo
(28,756)
703
(28,053)
(2,245)
261
(1,984)
442
1,258
$ (26,069)
1,685
(816
$ (27,754)
P
NET INCOME (LOSS)
Dividends on preferred stock and
accretion
$
5,389
—
$ (33,277)
427
$
1,377
—
$ (26,511)
427
NET INCOME (LOSS) AVAILABLE
TO COMMON STOCKHOLDERS
$
5,389
$ (33,704)
$
1,377
$ (26,938)
EARNINGS (LOSS) PER COMMON
SHARE
DILUTED EARNINGS (LOSS) PER
COMMON SHARE
DIVIDENDS DECLARED PER
COMMON SHARE
Average common shares outstanding
Diluted average common shares
outstanding
$
1.63
$
(16.28)
$
(7.24)
$
(6.62)
$
1.62
$
(16.28)
$
(7.24)
$
(6.62)
$
0.96
$
1.07
$
0.96
$
0.96
23
3,310
3,323
2,071
2,080
(1,658)
(1,666)
3,722
3,738
$
469
469
4,190
4,206
APPENDIX B
December 31, 2008
Pro Forma Condensed Consolidated Financial Information
24
Wells Fargo & Company and Subsidiaries
Consolidated Balance Sheet
(in millions, except shares)
ASSETS
Cash and due from banks
Federal funds sold, securities purchased under resale agreements and other
short-term investments
Trading assets
Securities available for sale
Mortgages held for sale (includes $18,754 and $24,998 carried at fair value)
Loans held for sale (includes $398 carried at fair value at December 31, 2008)
2,008
23,763
December 31,
2007
$
14,757
49,433
54,884
151,569
20,088
6,228
2,754
7,727
72,951
26,815
948
Loans
Allowance for loan losses
864,830
(21,013)
382,195
(5,307)
Net loans
843,817
376,888
Mortgage servicing rights:
Measured at fair value (residential MSRs)
Amortized
Premises and equipment, net
Goodwill
Other assets
14,714
1,446
11,269
22,627
109,801
16,763
466
5,122
13,106
37,145
1,309,639
575,442
LIABILITIES
Noninterest-bearing deposits
Interest-bearing deposits
150,837
630,565
84,348
260,112
Total deposits
Short-term borrowings
Accrued expenses and other liabilities
Long-term debt
781,402
108,074
53,921
267,158
344,460
53,255
30,706
99,393
1,210,555
527,814
Total assets
Total liabilities
STOCKHOLDERS’ EQUITY
Preferred stock
Common stock – $12/3 par value, authorized 6,000,000,000 shares; issued
4,363,921,429 shares and 3,472,762,050 shares
Additional paid-in capital
Retained earnings
Cumulative other comprehensive income (loss)
Treasury stock – 135,290,540 shares and 175,659,842 shares
Unearned ESOP shares
31,332
450
7,273
36,026
36,543
(6,869)
(4,666)
(555)
5,788
8,212
38,970
725
(6,035)
(482)
Total stockholders’ equity
99,084
47,628
1,309,639
575,442
Total liabilities and stockholders’ equity
25
Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income
Year ended December 31,
2007
2006
$ 177
5,287
1,573
48
27,632
181
34,898
$ 173
3,451
2,150
70
29,040
293
35,177
$ 225
3,278
2,746
47
25,611
332
32,239
INTEREST EXPENSE
Deposits
Short-term borrowings
Long-term debt
Total interest expense
4,521
1,478
3,756
9,755
8,152
1,245
4,806
14,203
7,174
992
4,122
12,288
NET INTEREST INCOME
Provision for credit losses
Net interest income after provision for credit losses
25,143
15,979
9,164
20,974
4,939
16,035
19,951
2,204
17,747
NONINTEREST INCOME
Service charges on deposit accounts
Trust and investment fees
Card fees
Other fees
Mortgage banking
Operating leases
Insurance
Net gains (losses) on debt securities available for sale
Net gains (losses) from equity investments
Other
Total noninterest income
3,190
2,924
2,336
2,097
2,525
427
1,830
1,037
(737)
1,125
16,754
3,050
3,149
2,136
2,292
3,133
703
1,530
209
734
1,480
18,416
2,690
2,737
1,747
2,057
2,311
783
1,340
(19)
738
1,356
15,740
NONINTEREST EXPENSE
Salaries
Commission and incentive compensation
Employee benefits
Equipment
Net occupancy
Operating leases
Other
Total noninterest expense
8,260
2,676
2,004
1,357
1,619
389
6,356
22,661
7,762
3,284
2,322
1,294
1,545
561
6,056
22,824
7,007
2,885
2,035
1,252
1,405
630
5,623
20,837
INCOME BEFORE INCOME TAX EXPENSE
Income tax expense
3,257
602
11,627
3,570
12,650
4,230
NET INCOME
$ 2,655
$8,057
$8,420
NET INCOME APPLICABLE TO COMMON STOCK
$ 2,369
$8,057
$8,420
EARNINGS PER COMMON SHARE
DILUTED EARNINGS PER COMMON SHARE
DIVIDENDS DECLARED PER COMMON SHARE
Average common shares outstanding
Diluted average common shares outstanding
$
$
$
$ 2.4
$ 2.4
$ 1.2
3,349
3,383
$ 2.5
$ 2.5
$ 1.1
3,368
3,410
(in millions, except per share amounts)
INTEREST INCOME
Trading assets
Securities available for sale
Mortgages held for sale
Loans held for sale
Loans
Other interest income
Total interest income
26
2008
0.7
0.7
1.3
3,378
3,391
The accompanying notes are an integral part of these statements.
27
APPENDIX C
Aggregate Performance and Condition Data for All U.S. Banks
Commercial Banks
Commercial Banks
Commercial Banks
National
National
National
December 31, 2008
All
Assets
Institutions
less than
$100
million
(dollar figures in millions)
Number of institutions reporting
Total employees (full-time equivalent)
AGGREGATE CONDITION AND INCOME
DATA
Net income (year-to-date)
December 31, 2007
Assets
greater
than
$100
million
All
Assets
Institutions
less than
$100
million
December 31, 2006
Assets
greater
than
$100
million
All
Assets
Institutions
less than
$100
million
Assets
greater
than
$100
million
7,085
2,784
4,301
7283
3,065
4,218
7401
3,245
4,156
1,946,859
48,591
1,898,268
1,957,082
56,301
1,900,781
1,941,541
60,375
1,881,166
24,341
536
23,805
97,630
1,255
96,375
128,244
1,539
126,705
Total assets
12,318,680
152,530
12,166,149
11,176,129
162,867
11,013,262
10,091,621
170,338
9,921,283
Earning assets
10,382,150
139,307
10,242,844
9,600,369
149,108
9,451,261
8,727,875
156,136
8,571,740
Total loans & leases
6,840,673
97,082
6,743,592
6,626,383
102,133
6,524,250
5,981,307
105,877
5,875,431
22,232
596
21,636
8999
325
8,674
4719
225
4,494
Total deposits
8,082,099
125,217
7,956,882
7,309,840
133,763
7,176,077
6,731,419
140,970
6,590,449
Equity capital
1,163,594
19,189
1,144,404
1,142,981
21,780
1,121,201
1,029,930
21,676
1,008,254
Yield on earning assets
5.36
6.29
5.35
6.75
7.03
6.75
6.53
6.72
6.52
Cost of funding earning assets
2.13
2.34
2.12
3.4
2.88
3.41
3.13
2.49
3.14
Net interest margin
3.23
3.95
3.22
3.35
4.15
3.34
3.39
4.23
3.38
Noninterest income to avg. earning assets
1.96
1.06
1.97
2.33
1.19
2.35
2.59
1.09
2.62
Noninterest expense to avg. earning assets
3.26
3.98
3.25
3.47
3.98
3.46
3.46
3.82
3.45
Net charge-offs to loans & leases
1.31
0.46
1.32
0.62
0.25
0.62
0.41
0.19
0.41
Credit-loss provision to net charge-offs
171.99
154.16
172.08
150.29
146.96
150.31
108.9
168.35
108.41
Net operating income to average assets
0.24
0.4
0.24
0.95
0.81
0.95
1.31
0.95
1.32
Retained earnings to average equity
-1.59
-2.79
-1.57
1.65
0.31
1.68
4.85
1.51
4.92
Pre tax return on assets
0.27
0.47
0.26
1.34
1.02
1.35
1.95
1.18
1.96
Return on assets
0.21
0.37
0.21
0.93
0.8
0.93
1.33
0.94
1.34
Return on equity
2.11
2.8
2.09
9.12
5.88
9.18
13.03
7.32
13.15
Percent of unprofitable institutions
21.85
22.84
21.2
11.19
17.23
6.8
7.54
13.1
3.2
Other real estate owned
PERFORMANCE RATIOS (YTD, %)
28
APPENDIX D
Value Analysis
September 30, 2008
In billions, except per share amount
Pro forma purchase price:
Wachovia common stock and equivalents
Exchange
Total shares of Wells Fargo stock exchanged
Purchase price per share of Wells Fargo common stock
2.161
0.1991
0.430
$34.13
Wachovia preferred stock converted to Wells Fargo preferred stock
Total pro forma purchase price
$14.7
$ 9.8
Preliminary allocation of the pro forma purchase price:
Wachovia stockholders’ equity
Wachovia goodwill and intangible asset
50.0
(20.2)
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Loans, net
Premises and equipment
Intangible asset
Other assets
Deposits
Accrued expenses and other liabilities
Long-term debt
Deferred taxes
Fair value of net assets acquired
Preliminary pro forma goodwill resulting from the Merger
(40.2)
0.5
12.8
(4.4)
(1.8)
(3.9)
4.2
13.0
10.0
$14.5
29
Works Cited
Dash, Eric. Wells Fargo & Company. New York Times. 8 October 2008
Lepro, Sara. “Wells Fargo slashes dividend 85 percent, expects $5B annual savings” Chicago Tribune. 6 March
2009 .
Shean, Tom. “Big merger, big risks; but these banks know the drill.” 16 December 2008. The Virginian Pilot. 10
February 2009 .
Wachovia Corporation. Proxy Statement, Schedule 14A. SEC Filing. Washington: Security of Exchange
Commission, 2008.
Wells Fargo. 8-K, November. 8-K. Washington: SEC, 2008.
“Wells Fargo, Wachovia Agree to Merge” Businesswire. 3 October 2008 < http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=200810030052 42&newsLang=en>
Wells Fargo-Wachovia merger completed. 1 January 2009. 10 February 2009 .
“Wells Fargo and Wachovia: A Combined Premier Financial Services Company” Wells Fargo. 3 October 2008
“What are the greatest risks within a Merger/Acquisition?” Beginners Guide. 10 February 2009
.
30
WELLS FARGO AND WACHOVIA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
September 30, 2008
Wells
Fargo
(In millions)
Wachovia
Adjustments
Pro Forma Wells
Fargo before
Stock Issuances
Stock
Issuances
35,094
—
ASSETS
22,233
—
8,093
12,187
—
20,280
—
9,097
56,000
—
65,097
—
Securities available for sale
86,882
107,693
(294)
194,281
—
Mortgages held for sale
18,739
2,491
—
21,230
—
635
6,756
—
7,391
—
Loans
411,049
482,373
(50,607)
B
842,815
—
Allowance for loan losses
(7,865)
(15,351)
10,372
C
(12,844)
—
Net loans
403,184
467,022
(40,235)
829,971
—
19,184
628
—
19,812
—
433
938
—
1,371
—
Cash and due from banks
Federal funds sold, securities
purchased under resale agreements
and other short-term investments
Trading assets
$
Loans held for sale
12,861
$
$
A
Mortgage servicing rights:
Measured at fair value (residential
MSRs)
Amortized
Premises and equipment, net
5,054
7,031
538
D
12,623
—
Goodwill
13,520
18,353
(3,845)
E
28,028
—
Other assets
44,679
63,046
13,327
F
121,052
—
$
1,356,230
—
$
145,198
—
628,985
—
Total assets
$
622,361
$
89,446
$
764,378
$
(30,509)
LIABILITIES
55,752
—
Interest-bearing deposits
264,128
363,088
1,769
Total deposits
353,574
418,840
1,769
774,183
—
Short-term borrowings
85,187
67,867
—
153,054
(37,333)
Accrued expenses and other liabilities
29,293
44,318
(2,294)
H
71,317
—
Long-term debt
107,350
183,350
(4,184)
I
286,516
—
Total liabilities
575,404
714,375
(4,709)
1,285,070
(37,333)
Preferred stock
625
9,825
(294)
10,156
22,674
Noninterest-bearing deposits
$
G
A,J
Common stock
Additional paid-in capital
Retained earnings
Cumulative other comprehensive
income (loss)
Treasury stock
5,788
7,124
(6,415)
J
6,497
781
8,348
59,883
(45,920)
J
22,311
13,878
40,853
(22,465)
22,465
J
40,853
—
(2,783)
(4,364)
4,364
J
(2,783)
—
(5,207)
—
—
(5,207)
—
Unearned ESOP shares
(667)
—
—
(667)
—
Total stockholders’ equity
46,957
50,003
(25,800)
71,160
37,333
1,356,230
—
Total liabilities and stockholders’
equity
$
622,361
$
764,378
$
(30,509)
$
N
Pro Forma
Wells Fargo
$
35,094
20,280
65,097
194,281
21,230
7,391
842,815
(12,844)
829,971
19,812
1,371
12,623
28,028
121,052
$
1,356,230
$
145,198
628,985
774,183
115,721
71,317
286,516
1,247,737
32,830
7,278
36,189
40,853
(2,783)
(5,207)
(667)
108,493
$
1,356,230
WELLS FARGO AND WACHOVIA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
September 30, 2008
Wells Fargo
Wachovia
Adjustments
1,508
—
Pro Forma Wells
Fargo before
Stock Issuances
(In millions, except per share amounts)
INTEREST INCOME
Trading assets
$
126
$
$
1,634
Securities available for sale
3,753
4,547
873
Mortgages held for sale
1,211
151
—
1,362
34
365
—
399
Loans held for sale
Loans
K
L
9,173
20,906
20,220
2,628
Other interest income
140
1,434
—
43,754
1,574
Total interest income
26,170
28,225
3,501
57,896
Deposits
3,676
7,348
—
11,024
Short-term borrowings
1,274
1,330
—
Long-term debt
2,801
5,514
826
Total interest expense
7,751
14,192
826
22,769
NET INTEREST INCOME
18,419
14,033
2,675
35,127
Provision for credit losses
7,535
15,027
—
22,562
Net interest income (loss) after provision
for credit losses
10,884
(994)
2,675
12,565
Service charges on deposit accounts
2,387
2,102
—
4,489
Trust and investment fees
2,263
7,253
—
9,516
Card fees
1,747
513
—
2,260
Other fees
1,562
815
—
2,377
Mortgage banking
2,720
213
—
2,933
Operating leases
365
174
—
539
1,493
239
—
1,732
INTEREST EXPENSE
2,604
N
9,141
NONINTEREST INCOME
Insurance
Net gains (losses) on debt securities
available for sale
316
(2,991)
—
(2,675)
Net gains (losses) from equity
investments
(148)
272
—
124
Other
1,277
(1,915)
—
(638)
Total noninterest income
13,982
6,675
—
20,657
NONINTEREST EXPENSE
Salaries
6,092
4,543
—
10,635
Incentive compensation
2,005
4,293
—
6,298
Employee benefits
1,666
1,348
—
3,014
955
879
—
1,834
Net occupancy
1,201
1,137
—
2,338
Operating leases
308
86
—
394
Goodwill impairment
—
24,846
—
Intangible amortization
139
296
1,337
Other
4,473
6,374
—
10,847
Total noninterest expense
16,839
43,802
1,337
61,978
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE (BENEFIT)
8,027
(38,121)
1,338
Income tax expense (benefit)
2,638
(4,844)
(39)
Equipment
NET INCOME (LOSS)
Dividends on preferred stock and
accretion
NET INCOME (LOSS) AVAILABLE
TO COMMON STOCKHOLDERS
EARNINGS (LOSS) PER COMMON
SHARE
DILUTED EARNINGS (LOSS) PER
COMMON SHARE
DIVIDENDS DECLARED PER
COMMON SHARE
$
5,389
$
—
(33,277)
$
5,389
$
(33,704)
$
1.63
$
$
1.62
$
0.96
1,772
(28,756)
P
(2,245)
$
—
427
$
1,377
24,846
O
$
1,377
(26,511)
427
$
(26,938)
(16.28)
$
(7.24)
$
(16.28)
$
(7.24)
$
1.07
$
0.96
Average common shares outstanding
3,310
2,071
(1,658)
3,722
Diluted average common shares
outstanding
3,323
2,080
(1,666)
3,738
IAL INFORMATION
Stock
Issuances
Pro Forma
Wells Fargo
—
$
1,634
—
9,173
—
1,362
—
399
—
43,754
—
1,574
—
57,896
—
11,024
(703)
Q
1,901
—
9,141
(703)
22,066
703
35,830
—
22,562
703
13,268
—
4,489
—
9,516
—
2,260
—
2,377
—
2,933
—
539
—
1,732
—
(2,675)
—
124
—
(638)
—
20,657
—
10,635
—
6,298
—
3,014
—
1,834
—
2,338
—
394
—
24,846
—
1,772
—
10,847
—
61,978
703
261
$
(28,053)
Q
442
1,258
(816
(1,984)
$
R
(26,069)
1,685
$
(27,754)
$
(6.62)
$
(6.62)
$
0.96
469
4,190
469
4,206
Wells Fargo & Company and Subsidiaries
Consolidated Balance Sheet
(in millions, except shares)
ASSETS
Cash
andfunds
due from
Federal
sold, banks
securities purchased under
resale agreements and other short-term
investments
Trading assets
Securities available for sale
Mortgages held for sale (includes $18,754 and
$24,998 carried at fair value)
Loans held for sale (includes $398 carried at fair
value at December 31, 2008)
2,008
23,763
December 31,
2007
$
14,757
49,433
54,884
151,569
2,754
7,727
72,951
20,088
26,815
6,228
948
Loans
Allowance for loan losses
864,830
(21,013)
382,195
(5,307)
Net loans
843,817
376,888
Mortgage servicing rights:
Measured at fair value (residential MSRs)
Amortized
Premises and equipment, net
Goodwill
Other assets
14,714
1,446
11,269
22,627
109,801
16,763
466
5,122
13,106
37,145
1,309,639
575,442
LIABILITIES
Noninterest-bearing deposits
Interest-bearing deposits
150,837
630,565
84,348
260,112
Total deposits
Short-term borrowings
Accrued expenses and other liabilities
Long-term debt
781,402
108,074
53,921
267,158
344,460
53,255
30,706
99,393
Total assets
Total liabilities
1,210,555
527,814
STOCKHOLDERS’ EQUITY
Preferred stock
31,332
450
Common stock – $12/3 par value, authorized
6,000,000,000 shares; issued 4,363,921,429
shares and 3,472,762,050 shares
Additional paid-in capital
Retained earnings
7,273
36,026
36,543
5,788
8,212
38,970
Cumulative other comprehensive income (loss)
Treasury stock – 135,290,540 shares and
175,659,842 shares
Unearned ESOP shares
(6,869)
725
(4,666)
(555)
(6,035)
(482)
Total stockholders’ equity
99,084
47,628
1,309,639
575,442
Total liabilities and stockholders’ equity
Wells Fargo & Company and Subsidiaries
Wells Fargo & Company and Subsidiaries
Consolidated Statement of Income
Consolidated Statement of Income
(in millions, except per share amounts)
Year ended December 31
2008
2007
INTEREST INCOME
Trading assets
Securities available for sale
Mortgages held for sale
Loans held for sale
Loans
Other interest income
Total interest income
$ 177
5,287
1,573
48
27,632
181
34,898
$ 173
3,451
2,150
70
######
293
######
INTEREST EXPENSE
Deposits
Short-term borrowings
Long-term debt
Total interest expense
4,521
1,478
3,756
9,755
8,152
1,245
4,806
######
25,143
15,979
######
4,939
9,164
######
3,190
2,924
2,336
2,097
2,525
427
1,830
3,050
3,149
2,136
2,292
3,133
703
1,530
1,037
(737)
1,125
16,754
209
734
1,480
######
(in millions, except per share amounts)
INTEREST INCOME
Trading assets
Securities available for sale
Mortgages held for sale
Loans held for sale
Loans
Other interest income
Total interest income
INTEREST EXPENSE
Deposits
Short-term borrowings
Long-term debt
Total interest expense
NET INTEREST INCOME
Provision for credit losses
Net interest income after provision for credit losses
NET INTEREST INCOME
Provision for credit losses
Net interest income after provision for
credit losses
Total noninterest income
NONINTEREST INCOME
Service charges on deposit accounts
Trust and investment fees
Card fees
Other fees
Mortgage banking
Operating leases
Insurance
Net gains (losses) on debt securities
available
for sale from equity
Net
gains (losses)
investments
Other
Total noninterest income
NONINTEREST EXPENSE
NONINTEREST EXPENSE
NONINTEREST INCOME
Service charges on deposit accounts
Trust and investment fees
Card fees
Other fees
Mortgage banking
Operating leases
Insurance
Net gains (losses) on debt securities available for sale
Net gains (losses) from equity investments
Other
Salaries
Commission
and incentive
compensation
Employee benefits
Equipment
Net occupancy
Operating leases
Other
Total noninterest expense
8,260
2,676
2,004
1,357
1,619
389
6,356
22,661
7,762
3,284
2,322
1,294
1,545
561
6,056
######
Income tax expense
INCOME BEFORE INCOME TAX
EXPENSE
Income tax expense
3,257
602
######
3,570
NET INCOME
NET INCOME
$2,655
######
$2,369
######
$
0.7
$ 2.4
$
0.7
$ 2.4
1.3
3,378
3,391
$ 1.2
3,349
3,383
Salaries
Commission and incentive compensation
Employee benefits
Equipment
Net occupancy
Operating leases
Other
Total noninterest expense
INCOME BEFORE INCOME TAX EXPENSE
NET INCOME APPLICABLE TO
NET INCOME APPLICABLE TO COMMON STOCK COMMON STOCK
EARNINGS PER COMMON SHARE
DILUTED EARNINGS PER COMMON SHARE
DIVIDENDS DECLARED PER COMMON SHARE
Average common shares outstanding
Diluted average common shares outstanding
EARNINGS PER COMMON SHARE
DILUTED EARNINGS PER
COMMON SHARE
DIVIDENDS DECLARED PER
COMMON SHARE
Averageaverage
common
sharesshares
outstanding
Diluted
common
outstanding
The accompanying notes are an integral part of these statements.
The accompanying notes are an integral part of these statements.
$
ubsidiaries
ended December 31,
2006
$ 225
3,278
2,746
47
######
332
######
7,174
992
4,122
######
######
2,204
######
2,690
2,737
1,747
2,057
2,311
783
1,340
(19)
738
1,356
######
7,007
2,885
2,035
1,252
1,405
630
5,623
######
######
4,230
######
######
$ 2.5
$ 2.5
$ 1.1
3,368
3,410
Wells Fargo / Wachovia
Merger
December 2008
THE MERGING COMPANIES
•
•
•
•
•
•
•
•
•
1879 – Founded
1893 – Wachovia Loan and Trust
1911 – Wachovia Bank and Loan Company
combine to become largest bank and trust
in South
1930 – Takes over Forsyth Savings to serve
the African American Community
1950 – Pioneer the MICR Technology for
Check Processing in the 1950’s
1973 – Personal Banker for every
customer
1995 – Online banking
2001 – Acquired by First Union – taking
name
2004 – Acquires SouthTrust – becoming
biggest bank in Southeast
•
•
•
•
•
•
•
•
•
1852 – Founded
1866 – Consolidated major stagecoach
lines across the West
1897 – Founded State Loan Company
1906 – Vault survived earthquake in San
Francisco
1920’s – Survived Great Depression
without losing depositor funds
1967 – Introduced Master Charge credit
card
1989 – Introduced online banking
1998 – Norwest Corp acquires Wells Fargo
– taking name
2003 – Only bank to receive highest AAA
credit rating of Moody’s
“Building destroyed, vault
intact, credit unaffected”!
REASONS BEHIND MERGER
• Wells Fargo’s ability to operate through the 2007-2008 financial crisis
– Moody’s Investment Services AAA rating
• FDIC threats of receivership for Wachovia’s banking subsidiaries if a
transaction were not announced on October 3, 2008
• Complementary business and operations
• Wells Fargo’s sound financial condition and asset quality
• Customer base footprint with limited overlap
• Enhanced presence in 39 U.S. states
MERGER CONSIDERATION
Wachovia
Common Stock
Wells Fargo
Common Stock
Implied Value of 1
share of Wachovia
1 Share
.1991 Share
$18.90 WF X .1991
=$3.76
EXPECTED ECONOMICS OF MERGER
• Potential savings of $5 billion per year
• Increased incremental revenue
• Rate of Return – 15% no later than 3rd year
THE NEW WELLS FARGO
Combined
Market Rank
Total Deposits
$774 billion
#2
Total Loans, net
$830 billion
#3
Mortgage Servicing $1.7 trillion
#2
Retail Brokerage
21,720 brokers
Mutual Funds
$254 billion
AUM
Insurance
$1.7 billion in
revenue
3rd largest U.S. fullservice brokerage based
on financial advisors
12th largest mutual fund
family
World’s 5th largest
insurance broker
UNPARALLELED MARKET POSITION
Wells Fargo retail banking stores – 3,339
Wachovia retail banking stores – 3,314
Total combined retail banking stores – 6,653
Largest, Most Extensive Banking Store Network Across the U.S.
Significant Customer Base (in millions)
Combined
• Total Retail Bank Households 11.4
• Small Business Customers
1.6
• Active Online Customers
10.8
+
11.6
23.0
0.6
2.2
5.3
16.1
Powerful Distribution
Combined
• Banking Stores
3,339
• Commercial Lending Offices 93
• Total Stores
5,897
• ATMs
6,960
+
3,314
6,653
n.m.
93
5,108
11,005
5,303
12,263
SIGNIFICANT COMPETITIVE ADVANTAGES
•
Presence in Growth Markets
50% of U.S. population growth in footprint
80% of U.S. population in footprint
•
Penetration of Affluent Entrepreneurs
#1 small business lender
Top 10 wealth manager
•
Consumer Banking
Competitive advantage in cross-sell
Most #1 rankings in customer satisfaction
among U.S. banks
•
Middle-Market Commercial Banking
Leading relationship bank in the West
#1 in Southeast
•
Insurance
Largest bank-owned insurance brokerage
Nation’s largest distributor of annuities
•
Trade Finance / Global Payments
Deep relationships with U.S. exporters
and leading position in global remittance
World-class international correspondent
banking network
•
Treasury Services
#1 cash management provider in market
Leading cash management provider on
East Coast
•
Mutual Funds
$172 billion in AUM
$83 billion in AUM
Source: Company filings, SNL Financial, as of 9/30/08; mutual fund data as of 12/31/08
POTENTIAL RISKS
Results
• Stock value decline
• Credit rating downgrade
• Synergies undevelop
Causes
• Expenses not reduced
• Internal rate of return goals
unachieved
• Cultural differences
• Organizational structural
differences
• Incomplete plan-of-action
• Incomplete budget
• Poor communication
INDUSTRY IMPACT
• Stabilize a shaky industry
– Keep the 4th largest bank from bankruptcy
• Unrivaled Power (30%)
– Wells Fargo
– Bank of America
– JP Morgan
DISCLOSURES
❑Acquisition Date:
December 31, 2008
Net Assets Acquired (in billions)
Current Assets
$ 242,855
Net Loans
$ 426,787
❑No contingent
considerations
Goodwill
$ 14,508
Other
$ 49,719
❑No addition of
contingent assets or
liabilities
Total Assets Acquired
$ 733,869
Total Deposits
$ 417,071
Other Debt
$ 292,595
Total Liabilities Assumed
$ 709,666
Net Assets Acquired
$ 24,203*
❑Percentage of voting
stock: 100%
❑Purchase accounting
method utilizing SFAS 141,
not SFAS 141R
*Based on September 30, 2008 pro forma data
GOODWILL
• 14.5 billion*
• Qualification
Yeah, they paid
extra for me!
– Key Management
• Clint Garrett
– East of Mississippi Footprint
– #1 Customer Service reputation of
Wachovia
– #1 in South-east Middle Market
Commercial Banking
*Based on September 30, 2008 prospectus pro forma
DETAILED FINANCIAL STATEMENTS
Financial Statements
One team, twice as strong