04 March, 2010

United States Bank Mergers & Acquisitions (Wells Fargo & Co.)

Photo: An Overland Stage Coach offering tours to visitors is seen outside a former Wells Fargo & Co. and Overland Mail store in Virginia City, Montana.

With special thanks to Nancy Sharp for the use of this photo. You can view her photos on-line via this link: http://www.flickr.com/photos/8665131@N04/527965300/

Wells Fargo & Co.

Of all American banks, Wells Fargo & Company probably has the most storied past. Thanks to countless Western cowboy tales, the name Wells Fargo is immediately associated, not just in America but around the world, with images of gun-shooting bandits chasing down thundering horse-drawn coaches in the Wild Wild West, where whoever had the bigger gun was the law.

First Interstate Bancorp

First Interstate Bancorp, which in later years became part of Wells Fargo & Co., was initially related to both Transamerica Corp. and Bank of America. In 1904, Amadeo P. Giannini established the Bank of Italy in San Francisco, which eventually became the Bank of America. In 1930, Mr. Giannini acquired other banking and insurance interests in both the East and West Coasts and placed them under a holding company called Transamerica Corp.

In 1956, the passing of the Bank Holding Company Act prohibited a holding company from owning both bank and non-bank businesses. Transamerica decided to focus on the insurance business and spun off its banking operations consisting of 23 banks in 11 states as FirstAmerica Corp., as well as California’s Bank of America. In 1961, FirstAmerica changed its name to Western Bancorporation to reflect its strong West Coast focus.

In 1981, Western Bancorporation decided to de-emphasize its regional identity and once again changed its name to First Interstate Bancorp.

Norwest Corporation

Norwest Corp.'s history goes back to 1929, when the Northwestern National Bank of Minneapolis and several small Midwestern banks joined forces to form the Northwest Bancorporation. This was one of the two banking co-operatives established in Minneapolis in 1929, the other being the First Bank System Inc., which later became U.S. Bancorp. Northwest Bancorporation, commonly known as Banco, soon acquired more affiliates and by 1932, there were 132 member banks. Banco was one of the three banks exempted from the McFadden Act of 1927, the law that prohibited banks based in one state from opening branches out-of-state. The other two banks exempted from the McFadden Act were the First Bank System (present-day U.S. Bancorp) and Western Bancorporation (name subsequently changed to First Interstate Bancorp) which eventually also became part of Wells Fargo & Co. in 1996.

During the 1930s Depression, Banco was able to quickly redeploy capital from the healthier member-banks to those in financial distress and as a result, not a single Banco member-bank went under. During the 1970s, the largely autonomous members under the Banco umbrella began to unify and integrate their strategic planning, marketing, data processing, fund management and loan syndication efforts. By the late 1970's, Banco consisted of 85 member banks stretching across seven states: Minnesota, Wisconsin, Iowa, Nebraska, North and South Dakotas, and Montana.

In 1983, Northwest Bancorporation changed its name to Norwest Corporation, curiously dropping any reference to its core business of banking. In the same year, Norwest bought Iowa-based Dial Corp., a consumer loans company with operations in 38 states. Further expansion in the 1990s saw Norwest moving into the Indiana, Illinois, Colorado, New Mexico and Texas markets. Countering the 1990s trend towards ATM and telephone banking, Norwest stuck to branch-banking, emphasizing on building personal relationships with its clients, and on cross-selling financial products from basic banking accounts to mortgage and consumer loans.

Wells Fargo & Co.

Back in the 1830s, the Western frontier of the U.S. was wild, lawless, and undeveloped in many aspects. Everything from money and currency to foods, clothes, furniture, utensils and tools, and machineries and building materials were in short supply. Settlers often needed to import these “luxury” items from the East Coast, where the society was much more advanced and organized.

Unbeknownst to many, Wells Fargo & Co. was related to the American Express Co. In 1841 Vermont native Henry Wells established the Wells & Co. to provide express service between New York City and the upstate port of Buffalo. In 1850, Wells & Co. joined forces with rivals Livingston, Fargo & Co. and Wasson & Co. to form the American Express Co. At this point, American Express’ focus was sill in the U.S. Northeast, with limited service to the Midwestern states of Illinois, Ohio and Iowa. Foreseeing the great potential of the West Coast market, Henry Wells and William G. Fargo soon proposed expanding American Express’ service to California, but the company’s other directors balked at the risky move. Undaunted and determined, Mr. Wells and Mr. Fargo left American Express and New York for San Francisco to launch their own Wells, Fargo & Co. in 1852, offering gold trading (gold dust, bullion and coins), safekeeping as well as freight forwarding and delivery services.

Before long, Wells, Fargo appointed agents in other towns and gold mining camps in the West Coast. The company gained a reputation of trust by dealing rapidly and securely with clients’ money and goods. It also offered basic financial services like money orders, travellers’ cheques, and transfer of funds by telegraph.

Wells, Fargo was also known to deploy the fastest mode of transport whenever possible, whether it was stagecoach, steamship, railroad, pony rider or telegraph. In the 1850s and 1860s, the firm was involved with the Overland Mail Company (the famous Butterfield Line) as well as the Pony Express. Rolling across 2,700 miles of open land, deserts, mountainous passes, and crossing rivers, Wells Fargo delivered goods and gold from St. Louis to Los Angeles and San Francisco twice a week on a 25-day journey.

Following the completion of the transcontinental railway in 1869, Wells, Fargo’s overland trans-continental network was dismantled as the railway offered a much faster alternative. However, localized stagecoach services continued where the railroad did not reach. Wells, Fargo established itself as the first nationwide express company connecting 2,500 communities in 25 states. From the urban and industrial Northeast to the transportation hubs of Chicago and St. Louis, the agricultural Midwest, the ranches in Texas, the mining communities in Arizona and lumber mills in the Pacific Northwest, Wells, Fargo picked up and delivered goods of all sorts, and issued and cashed bank drafts, travellers cheques, conducted fund transfers by telegraph, and safe-guarded gold and other valuables.

In 1905, “Wells Fargo & Co.’s Bank, San Francisco” was formally separated from Wells Fargo & Co. Express. Wells Fargo & Co’s Bank then merged with Nevada National Bank to form the Wells Fargo Nevada National Bank. The bank’s building, however, was destroyed in the 1906 San Francisco Earthquake, but the bank’s vault and precious metals reserves were left intact, and the bank survived the disaster.

Wells Fargo Nevada National Bank acquired the Union Trust Co. in 1923 and in 1960 acquired the American Trust Company, a northern Californian bank with an extensive branch network. Following a few name changes, the name Wells Fargo Bank was adopted in 1962. In 1968, the bank switched from a state charter to a national one.

Federal legislation changes in the 1980s allowed the bank to provide state-wide banking by expanding into southern California. In 1986, Wells Fargo acquired Crocker National Bank for USD $1.1-billion from Britain’s Midland Bank. Just two years later, it acquired Barclays Bank of California.

Further banking reforms in the 1990s finally permitted Wells Fargo to return to other Western, Midwestern and Eastern states, some 80 years after its express business was nationalized in 1918.

Recent transaction(s):
  • In 1996, Wells Fargo & Co. bought First Interstate Bancorp for USD $12.31-billion. However, the integration of Wells Fargo and First Interstate proved challenging: Wells Fargo had been at the forefront of high-tech banking and indeed was the first major bank to offer Internet banking back in 1995; meanwhile, First Interstate had always prided its personal, relationship banking offered at the branch level. Computer glitches during the integration soon led to "lost" customer deposits, bounced cheques, and long line-ups. Customers in droves left Wells Fargo for other banks.
  • In 1998, as Wells Fargo was weakened due to its much-criticized integration issues, Norwest Corp. acquired Wells Fargo & Co. for USD $34.61-billion but decided to keep the Wells Fargo name as well as its San Francisco headquarters. Learning from the Wells Fargo-First Interstate lesson, the Norwest-Wells Fargo integration proceeded much more smoothly.
  • In 2000, the new Wells Fargo acquired small banks in Michigan, Texas, Alaska and Nebraska.
  • In 2000, Wells Fargo acquired Utah's largest bank First Security Corp. for USD $2.9-billion.
  • In 2007, the bank bought Sacramento-based Placer Sierra Bancshares, a California bank with 50 branches, for USD $645-million.
  • Also in 2007, the bank bought Greater Bay Bancorp for USD $1.5-billion. Greater Bay was a holding company and operated 41 branches in the San Francisco Bay area through subsidiaries Santa Clara Valley National Bank, Mid-Peninsula Bank, Peninsula Bank of Commerce and Mount Diablo National Bank.
  • During the summer of 2008, the global credit bubble burst and banks around the world suffered billions of losses from bad mortgage and consumer loans. As institutional investors withdrew from the short-term money market, banks found themselves short of the capital needed to finance their lending activities. Wachovia Corp. was believed to be on the brink of collapse when the Federal Deposit Insurance Corp. (FDIC) brokered a deal on 2008-09-29 under which Citigroup would buy Wachovia's banking operations and branches for USD $2.16-billion in stock. Citigroup would take over a USD $312-billion loan pool from Wachovia, and be responsible for the first USD $42-billion of potential losses from the pool; the FDIC would absorb any potential losses beyond the first USD $42-billion. Citigroup would also take over Wachovia's customer deposits. Not included in the sale were Wachovia's AG Edwards and Evergreen divisions.
  • Merely fours days later, in a bizarre twist of events, Wachovia rescinded the sale to Citigroup and agreed to a USD $15.1-billion buyout from Wells Fargo & Co. Under the new agreement, for each Wachovia share, shareholders would receive 0.1991 share of Wells Fargo, valuing each Wachovia share at about USD $7. Wells Fargo’s offer did not require any financial guarantee from the FDIC, and would also assume all of Wachovia’s preferred stock and debt. Wells Fargo said it expected to incur USD $10-billion in integration charges, and would raise USD $20-billion from issuing new securities to maintain its capital position.
  • In the days following the new sale agreement, Citigroup and Wells Fargo engaged in a brief legal battle for the right to acquire Wachovia, but Citigroup on 2008-10-08 accepted the fait accompli, essentially ending its challenge to Wells Fargo. When the deal closed in December 2008, Wells Fargo’s offer for Wachovia was valued at USD $12.68-billion.
  • Following the lead of Britain’s GBP 37-billion (USD $64-billion) partial nationalization of The Royal Bank of Scotland Group, HBOS and Lloyds TSB Group, the U.S. government unveiled a similar plan on 2008-10-14 under which the U.S. Treasury invested USD $250-billion in nine major U.S. banks. The nine banks that issued new preferred stock in exchange for USD $250-billion in funds were: Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of New York Mellon, and State Street. All nine banks’ preferred stock would pay 5% dividends annually in the first five years, and 9% thereafter. The funds were disbursed under the name Troubled Asset Relief Program (TARP). Wells Fargo received USD $25-billion from TARP.
  • In December 2009, Wells Fargo raised USD $12.25-billion from a stock issue to help repay the USD $25-billion state aid it received from the U.S. government under TARP in October 2008.
  • In November 2010, Well Fargo and Citigroup settled out of court over the acquisition of beleaguered bank Wachovia Corp. (see entry in 2008). Under the terms of the settlement, Wells Fargo paid Citi USD $100-million and both banks terminated their legal challenges against each other
  • In October 2015, Wells Fargo acquired USD $32.0-billion of loans and leases from GE Capital. The businesses acquired included all of GE Capital's commercial distribution finance and vendor finance operations, as well as a portion of the corporate finance unit.  The operations offered financing for manufacturers as well as dealers across many sectors, including automotive, aerospace, motorsport, marine, recreational vehicle, electronics & appliances, office imaging, food & beverage, retail, technology and construction, amongst others. Ninety percent of the loans and leases are based in the U.S. and Canada. 
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