Wells Fargo has found a way to flourish despite the federal government.
From this morning’s Washington Post:
Wachovia said it will snub Citigroup and jump into the arms of Wells Fargo instead, seeking to upend a government-arranged rescue of the troubled bank in favor of a more traditional merger, Wells Fargo announced this morning.
The reaction from federal regulators was chaotic, suggesting the announcement had surprised them.
The new deal would pay Charlotte-based Wachovia shareholders $15.1 billion instead of the $2.2 billion offered by Citigroup. Wells Fargo also said it will not need a government backstop, something Citigroup had demanded.
Under the now-defunct sale to Citigroup, which was urged by federal regulators and announced last Monday, the New York-based banking colossus would have purchased Wachovia’s banking business. In exchange, the FDIC promised to limit Citigroup’s losses on a $312 billion portfolio of Wachovia’s most troubled loans. The government agreed to absorb all losses beyond $42 billion in exchange for a $12 billion stake in Citigroup.
Wachovia chief executive Robert K. Steel hailed the Wells Fargo deal as a vast improvement both for taxpayers, who are now off the hook, and for his own shareholders.
The merger “enables us to keep Wachovia intact and preserve the value of an integrated company, without government support,” Steel said. “The market presence and composition of our businesses, along with our service-oriented cultures, are extraordinarily complementary and this combination creates great potential for stability and growth.”
Wells Fargo is in position to buy Wachovia because the bank was far more conservative in recent years than many of its rivals. While Wells Fargo was one of the nation’s largest mortgage lenders — and one of the largest subprime lenders — the company avoided the worst excesses of its rivals, dealing more cautiously with its customers. Wells Fargo also has little presence on Wall Street, and largely avoided the investments in mortgage-related securities that are damaging other banks.
In other words, there are ways for responsible banks and their shareholders to survive and thrive without federal meddling. It is this responsibility that should be encouraged, not the irresponsibility that Congress is poised to reward with its anti-Constitutional bail-out.
Wachovia and Wells Fargo are better off for spurning federal nannyism, and the taxpayers will be better off if they do the same.
Please contact your Representative and urge him/her to vote against the bail-out. If you do not know how to reach your Representative’s office, please click here.