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Wells Fargo: Smart Like Buffett

[1]It probably comes as no big surprise that Wells Fargo (WFC [2]), one of the largest banking concerns in the US, well diversified in financial products across deposits, lending, credit cards, sales finance, and a smart mortgage originator, announced Friday that they had made a deal to purchase the entire Wachovia package [3] for $15.4 Billion. The surprise comes with the fact it was five days late.  The deal undercuts CitiGroup’s (C [4]) announced purchased of part of the Wachovia (WB [5]) operation, and does what CitiGroup could not do: completes the deal without Federal Funding.

I was shocked when I heard, since Wells had originally participated in negotiations last weekend along with CitiGroup.  Wells evidently was able to use the week, in which a contract had not yet been signed, to perform additional due diligence, and came up with an offer Thursday evening.

As the day progressed Friday, it was clear that the deal may end up in court [6] due to an exclusivity agreement between Wachovia and CitiGroup.  Wells and Wachovia are confident that they have a good deal.  The next few weeks will probably tell us how complicated this will get.

What impresses me is that this is another example of the Market seeking to resolve the current economic issues without forcing the government to pony up money to help.  Without a doubt, there are aspects of the bail-out bill passed by Congress Friday that make it easier to make deals like this (espcially with $250,000 FDIC cap), but overall, people like Wells Fargo and Warren Buffett [7] are taking responsibility and blazing the trail toward forcing the financial world to solve it’s own problems.

Any wonder that Berkshire Hathaway (Warren Buffett’s company) is the largest holder of Wells Fargo stock?

Update: Modified lead.

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#1 Comment By DJ Durant On October 6, 2008 @ 10:20 pm

Here we are a couple of days later, and while it’s not yet a done deal, the boys over at Citi have quite a bit of egg on their face. They signed a term sheet, but not a definitive offer sheet? Now they’re suggesting that Wells stole it? Why didn’t they seal the deal?

Big, solid move on Wells Fargo’s part and will be seen as a confidence booster for the markets…