Wells Fargo, Norwest agree on $31.9 billion merger

CATALINA ORTIZ AP Business Writer
AP Online
06-08-1998
SAN FRANCISCO (AP) _ Wells Fargo & Co. and Norwest Corp. are merging into what would be the nation's seventh-largest bank _ the latest deal in a rush by banks, brokerages and insurers to expand their base of customers while lowering costs.

The combined institution, to retain the storied Wells Fargo name, would have about $191 billion in assets, more than 90,000 employees, about 20 million customers and 5,777 financial services outlets worldwide. It would have more branches and Internet customers than any other U.S. bank.

The deal, a stock swap valuing Wells Fargo at about $34 billion, was announced Monday before markets opened. But as Norwest shares fell 7.2 percent during the day, the value of the transaction shrank to $31.9 billion.

Warren Buffett, the legendary investor who is one of the world's richest men, stood to get more than $2.5 billion for his 8 percent stake in Wells Fargo.

The proposed deal is only the latest banking merger to be announced as companies scramble to more efficiently attract customers with a broad range of financial services.

Wells Fargo focuses on commercial as well as consumer business while Norwest is the nation's biggest mortgage underwriter.

``This is an awesome, awesome franchise,'' Richard M. Kovacevich, chairman and chief executive of Minneapolis-based Norwest, said in a conference call with reporters. He will become president and chief executive of the merged bank, which will be based in San Francisco, the home of Wells Fargo.

With the companies' territories overlapping only in a few Southwestern states, Kovacevich said layoffs would be ``minimal.'' No details of planned cuts were disclosed.

The proposed deal would be the seventh largest overall and the third biggest in the banking industry. It would trail only Citicorp's planned merger with Travelers Group, which values each company at about $73 billion, and Nationsbank Corp.'s proposed $59 billion combination with BankAmerica Corp.

``We think there are complementary strengths in the two companies. We believe that the ability for the company to grow and expand is much greater ... than going it alone or looking at other possible mergers,'' said Paul Hazen, chairman and chief executive of Wells Fargo, who will become the consolidated company's chairman.

Wells Fargo has been in a big deal before, winning with an $11.3 billion bid for First Interstate Corp. of Los Angeles in 1996.

But that combination had a stormy launch. Wells had to close hundreds of branches and eliminated 7,000 jobs. It also lost customer deposits, bounced good checks and incorrectly withdrew money from some accounts and deposited it in others.

Because of those difficulties, Wells Fargo had been the subject of takeover or merger speculation for months.

``I think they were under a lot of pressure to find a merger partner,'' Campbell K. Chaney, an analyst with Sandler O'Neill & Partners in Walnut Creek, Calif., said of Wells Fargo. ``The shareholders were unhappy with the stock performance.''

Speculation had centered on a combination with U.S. Bancorp, based in Minneapolis. But Hazen and the head of U.S. Bancorp, former Wells Fargo executive John Grundhofer, ``don't necessarily see eye to eye,'' Chaney said.

Hazen said that joining with Norwest will go much more smoothly than with First Interstate largely because the partners will spend three years integrating their operations, paying special attention to the computer systems.

But the merger drew some initial criticism.

Rep. Bruce Vento, D-Minn., a member of the House Banking Committee, said he would like to see the Wells Fargo-Norwest deal called off because he fears services will be reduced in small communities.

Gail Hillebrand, a senior lawyer with Consumers Union, urged the merged bank's management to avoid what it called Wells Fargo's ``anti-consumer'' practices.

The nonprofit organization, which publishes Consumer Reports magazine, criticized the San Francisco bank for closing branches following the First Interstate deal and charging what it considers high fees.

Hazen said the companies don't plan to change fees immediately but might in the future.

Under the agreement, which requires approval from shareholders and regulators, Wells Fargo shareholders would get 10 shares of common stock of Norwest in exchange for each share of Wells Fargo common stock. That would leave Wells Fargo stockholders with about 52.5 percent of the combined company and Norwest with approximately 47.5 percent.

Wells Fargo rose $2.50 a share to close at $365.75 on the New York Stock Exchange, where Norwest was down $2.87 1/2 at $36.81 1/4.

Norwest has been one of the industry's top performing banks this decade. Wells Fargo has a history that dates back to the Gold Rush and the Pony Express.

The combined company would have offices nationwide for mortgage and consumer lending and have banks in 21 states across the Midwest, Rocky Mountain and Western regions. It would also have outlets in Canada, the Caribbean, Latin America and other countries.

Wells Fargo and Norwest expect to save at least $650 million in costs annually by the third year in operation.

As part of the deal, each company was given an option to buy up to 19.9 percent of the other company on favorable terms. Such arrangements are commonly included in merger pacts to discourage unwanted suitors from breaking up the deal.


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