Six months after acquiring Wachovia Corp., the Wells Fargo (WFC) name and stagecoach logo have yet to be seen in the Kansas City area. Indeed it will not be visible till the next year. San Francisco-based Wells Fargo has been moving slowly to consolidate Wachovia Bank into its system.
During December last year, the brokerage firm Wachovia Securities became part of Wells Fargo. All 4,800 branches of the residential lender Wachovia Mortgage have been folded into Wells Fargo Home Mortgage.
Wachovia Corp. was purchased by Wells Fargo on Dec 31, 2008, when it ceased to be an independent corporation. The company had been battered by heavy losses – especially in its portfolio of flexible, interest-only home loans – and was suffering a run on its deposits.
The consolidation of Wachovia bank branches into Wells Fargo’s network is scheduled to begin this November. The integration will begin in Colorado, one of a half-dozen states where both the institutions have overlapping branches.
After Colorado, the branch-conversion process will move to five other states – California, Arizona, Illinois, Nevada and Texas – where Wells Fargo and Wachovia offices also overlap. Conversion in these states is expected to begin in 2010, though the conversion dates haven’t been announced for the Wachovia-only markets in the Carolinas and along the East Coast.
Wells Fargo’s growth plans have included a large number of acquisitions, Wachovia being the latest in December 2008. The company has demonstrated its ability to assimilate local franchises offering a wider range of products than the acquired company could have had.
The Wachovia merger is expected to generate an internal rate of return (IRR) of about 20% and be accretive to earnings starting from the third year without any adjustments. Further, as a result of the merger, Wells Fargo substantially expanded its distribution network and has a Community Banking presence for the first time in 16 states – Alabama, Connecticut, Delaware, Florida, Georgia, Kansas, Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington D.C.
Last month, Wells Fargo reported net income of 57 cents per share. The company reported that the Wachovia merger is on track and expects to realize $5 billion of annual merger-related savings upon completion of the integration process. During the latest reported quarter, 39% of the combined revenue came from Wachovia. With the combined resources, Wells Fargo will be in an even better position to satisfy its customers’ financial needs.

We maintain a Neutral recommendation on the shares of Wells Fargo.

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