Wells Fargo Agrees to Buy All Wachovia Operations; Citi Deal Off?

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Wells Fargo & Co. said it agreed to buy Wachovia Corp. for about $15.1 billion, without U.S. government help, thwarting a planned Citigroup Inc deal that had been seen as big boost for both Citi and Wachovia.

Wells Fargo is one of the few major U.S. banks that has remained consistently profitable during the credit crisis, while Citigroup has posted more than $17 billion in losses in the last three quarters.

The Wells Fargo deal, announced Friday, was seen as a big blow to Citi, whose shares fell more than 10 percent in premarket trading. Wells Fargo and Wachovia shares both rose before the market opened.

Citi had said Monday it reached a preliminary agreement to buy Wachovia’s banking assets for $2.16 billion in a government-brokered deal. That deal was supposed to boost Citigroup’s U.S. deposit base, while propping up Wachovia, a bank that looked increasingly wobbly after Lehman Brothers Holdings Inc filed for bankruptcy last month.

“For Citigroup, this is a real loss … This was a deal that was going to save them as much as it was saving Wachovia,” said Cassandra Toroian, chief investment officer at Bell Rock Capital in Paoli, Pennsylvania.

For each share of Wachovia, investors will receive 0.1991 Wells Fargo share, which is equal to $7 a share based on Wells Fargo’s closing price on Thursday of $35.16.

Wells Fargo said it expects to incur merger and integration charges of about $10 billion. It also intends to issue up to $20 billion in new Wells Fargo securities, primarily common stock, “to maintain its strong capital position.”

A Wachovia spokeswoman said neither Citigroup nor the Federal Deposit Insurance Corp is involved in the transaction. Citi officials did not immediately return calls for comment, although the Citi/Wachovia was featured prominently on Citi’s website Friday morning.

“This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support,” said Wachovia President and Chief Executive Robert Steel.

Wachovia’s board approved Wells Fargo’s offer Thursday night.

Wachovia closed at $3.91 on Thursday, meaning that Wells Fargo is paying a 79 percent premium.

The combined company will base its East Coast retail and commercial and corporate banking business in Charlotte. St. Louis will remain the headquarters of Wachovia Securities.

The Wachovia-Citi transaction had been supervised by the FDIC and included assistance from the government.

(Additional reporting by Elinor Comlay and Ed Tobin; editing by Jeffrey Benkoe)