Proceeding swiftly with the completion of its repayment program, on Tuesday, Wells Fargo & Co. (WFC) projected the raising of $12.25 billion through an offering of 489.9 million shares at a price of $25 per share. The company expects to close the sale of stock on Dec. 18, 2009.

The news came in just a day after the company and Citigroup Inc. (C) had announced their intention of relieving themselves from the Troubled Asset Relief Program (TARP) by repaying the entire $25 billion and $20 billion government bailout loan, respectively. While a part of the stock offering at $25 per share is likely to raise $12.25 billion, Wells Fargo expects to raise about $10.65 billion through the sale of 426 million shares of common stock and another $1.6 billion from the sale of 63.9 million shares apportioned to underwriters.
 
The total stock offering will be sufficient to help the company repay its TARP loan successfully. Hence, as previously stated, Wells Fargo will no longer require raising $1.5 billion through asset sales by the end of 2010.
 
Besides the sale of stock, Wells Fargo has decided to grant stock bonuses worth $1.35 billion against the benefit plan to employees instead of awarding them with cash bonuses. This explains the effect of the TARP compensation restrictions imposed on the companies that entail curtailment of cash salaries and bonuses for the top executives.
 
Moreover, as a result of the stock offering, the company’s total common stock outstanding will augment by about 10.4% to around 5.18 billion shares from the reported 4.69 billion shares as of Oct 30, 2009. However, Wells Fargo is expected to incur charges worth $2 billion on share dilution in the fourth quarter of 2009, since the book value of the preferred stock is less than the amount paid.
 
We believe that exiting the TARP program will benefit Wells Fargo as it will be relieved from the pay restrictions and other government regulations. However, deduction or significant modifications in the salaries and bonuses can cause some unrest among the executives. This could prove detrimental for the smooth operation and further appointments of the executives. Hence, we retain the Neutral outlook on the stock.
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