bobbyw24
12-09-2009, 04:36 AM
By Dakin Campbell
Dec. 9 (Bloomberg) -- Wells Fargo & Co.’s efforts to repay U.S. bailout funds may be hindered by a $5 billion debt owed to Prudential Financial Inc. that could drain the bank’s cash or dilute current shareholders.
Wells Fargo, recipient of $25 billion in U.S. aid, must pay Prudential for a 23 percent stake in the San Francisco-based bank’s securities brokerage unit. While the stake may be bought for cash or stock around Jan. 1, according to a Prudential third-quarter filing, most analysts said Wells Fargo will use shares.
Chief Executive Officer John Stumpf may seek to raise equity for the stake as he begins to exit the U.S. Troubled Asset Relief Program. Bank of America Corp. said last week it will repay the government and Citigroup Inc. may agree on a plan this week, said people familiar with the matter.
“If they are going to pay Prudential in stock it might make sense to incorporate that as part of a larger offering to repay TARP,” said Joe Morford, an analyst at RBC Capital Markets in San Francisco, who has an “outperform” rating on the stock. “But would they grant Prudential $5 billion of stock that they could dump on the market the next day? That wouldn’t be in Wells Fargo’s best interest.”
The dilemma stems from a deal struck in 2003 between Prudential and Wachovia Corp. to combine their retail brokerages into a joint venture. Prudential had the right to sell its stake to Wachovia, an obligation that passed to Wells Fargo when it bought Wachovia at the end of last year.
Wells Fargo has vowed to extract itself in a “shareholder- friendly way,” a task that may complicated by the purchase of Prudential’s stake. The U.S. is demanding that lenders including Bank of America raise equity by selling stock before repaying TARP, which dilutes shareholders.
Shareholder Dilution
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeT1a947IACg&pos=6
Dec. 9 (Bloomberg) -- Wells Fargo & Co.’s efforts to repay U.S. bailout funds may be hindered by a $5 billion debt owed to Prudential Financial Inc. that could drain the bank’s cash or dilute current shareholders.
Wells Fargo, recipient of $25 billion in U.S. aid, must pay Prudential for a 23 percent stake in the San Francisco-based bank’s securities brokerage unit. While the stake may be bought for cash or stock around Jan. 1, according to a Prudential third-quarter filing, most analysts said Wells Fargo will use shares.
Chief Executive Officer John Stumpf may seek to raise equity for the stake as he begins to exit the U.S. Troubled Asset Relief Program. Bank of America Corp. said last week it will repay the government and Citigroup Inc. may agree on a plan this week, said people familiar with the matter.
“If they are going to pay Prudential in stock it might make sense to incorporate that as part of a larger offering to repay TARP,” said Joe Morford, an analyst at RBC Capital Markets in San Francisco, who has an “outperform” rating on the stock. “But would they grant Prudential $5 billion of stock that they could dump on the market the next day? That wouldn’t be in Wells Fargo’s best interest.”
The dilemma stems from a deal struck in 2003 between Prudential and Wachovia Corp. to combine their retail brokerages into a joint venture. Prudential had the right to sell its stake to Wachovia, an obligation that passed to Wells Fargo when it bought Wachovia at the end of last year.
Wells Fargo has vowed to extract itself in a “shareholder- friendly way,” a task that may complicated by the purchase of Prudential’s stake. The U.S. is demanding that lenders including Bank of America raise equity by selling stock before repaying TARP, which dilutes shareholders.
Shareholder Dilution
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeT1a947IACg&pos=6