Nov 6, 2008 5:53 pm US/Pacific
Wells Fargo Prices $11B Offering At $27 Per Share
SAN FRANCISCO (AP) ―
Wells Fargo & Co. on Thursday priced an $11 billion offering of common stock at $27 per share, in an effort to maintain a strong capital position as it absorbs the operations of Wachovia Corp.
The offering of 407.5 million shares was priced at a 6.2 percent discount to the stock's Thursday closing price of $28.77. Originally, Wells Fargo had projected it would raise $10 billion from the offering.
The offering, which was led by J.P. Morgan Securities Inc., is expected to close on or about Nov. 13. The underwriters have been given the option to buy up to 61 million additional shares to cover any overallotments.
The San Francisco-based bank said previously that it plans to raise up to $20 billion, mostly through the issuance of common stock, in an effort to boost its capital position in light of its acquisition of Wachovia. But the bank declined to comment further on whether it still plans to raise an additional $10 billion.
Sandler O'Neill & Partners analyst R. Scott Siefers said the total amount of capital to be raised remains a key question.
"Should the company choose not to complete that remaining $10 billion, earnings-per-share would be helped out, due to less dilution, but the combined company would of course be running on an even thinner tangible common equity base," he wrote in a note to clients Thursday.
During a conference call with investors Wednesday, Wells Fargo executives reiterated that they expect $60 billion of cumulative credit losses for the life of Wachovia's $482.4 billion loan portfolio. They said the bank plans to record about $39.2 million of those losses, or two-thirds of the total, at the close of the deal, which is expected by the end of the year.
Due to a recent clarification from the Internal Revenue Service, Wells Fargo can use these losses to shelter years of profits.
In late September, the IRS issued a surprise ruling that boosts banks' ability to offset the losses from loans and other bad debts held by banks they acquire by taking larger tax write-offs against future profits. Under the old ruling, companies could only write off a small portion of the losses, limiting how much of a tax benefit they could get.
By combining with the Charlotte, N.C.-based bank, Wells Fargo will have total deposits of $713 billion and more than 6,600 retail locations—more than any of its rivals, according to presentation materials released Wednesday.
The deal is still subject to Wachovia shareholder approval. A special shareholder meeting will be held sometime in December, according to the presentation.
Wells' original offer for Wachovia totaled about $15.1 billion, but it is now valued at about $12.4 billion due to the decline in Wells' stock price since the deal was announced Oct. 3.
Wells Fargo shares fell $1.45, or 5 percent, to $27.32 in after-hours trading.
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