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Wells Fargo Swoops in on Wachovia: Days of 'Something-for-Nothing' Likely Over

by: Thomas Kee October 03, 2008 | about stocks: AIG / C / FNM / FRE / JPM / WB / WFC    

Thomas Kee

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Capitulation begets opportunity, and Well Fargo (WFC) is taking advantage of that.

In fact, the Wachovia (WB) deal is an extremely compelling one.  This deal drew a line in the sand, and it separated fire sales from equity deals.  The days of getting something for virtually nothing are probably behind us.  These type of deals may be a thing of the past. 

Recent deals include:

  • JPM acquired BSC for the cost of real estate
  • JPM also acquired WM for pennies
  • FNM and FRE were discarded as worthless by the market
  • AIG is considered virtually worthless.

These actions were all due to the lack of support in the open market.  They also required government intervention.  Although undulations almost surely still exist, the first sign of competitive capitalism has surfaced.  This was the first sign in possibly over a year.

Prior to now the government had to struggle to find a buyer for distressed banks and financial institutions.  The government had to incentivize other companies to assume the control of those assets.  Now, with a swift brush stroke, Wells Fargo has changed the playing field completely.

This is extremely significant

Citigroup (C) tried to play the role of JP Morgan (JPM), and the rug was ripped out from under them.  The reverberating signal being resounded throughout the market now is:

Don't expect to get something for nothing anymore

I expect proper valuations and a much more stable financial system in the immediate future.  This WFC - WB deal will act as a direct catalyst for that because it renewed the capitalist spirit and distilled the fear that restrained prior corporate action.

Hindsight will make the significance of this deal quite obvious. 

Disclosure: Near-term bull; long-term bear.

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This article has 4 comments:

  •  
    Oct 05 12:01 PM
    Now that the 'bail out' plan came through, Wachovia needs fast to take advantage of it, it needs to sell its toxic loan portafolio from its banking subsidiaries around 122 billion if not more to the government close to even cost prices and take serious advantage of the tax break plan and remediate their banking book of business. They also need to contact their customers that did the run on the bank like chickens without head to bring their deposits back and reassure them that they are ok and there is not reason to panic because of the talking heads of FOX news and rest of media and the incompetence of the FDIC. This strategy will demonstrate to the public that the current 'bail out' plan is working and that Wachovia is the first product of it.
    Reply
  •  
    Oct 05 12:08 PM
    The government intervention in Wamu and Wachovia cases only show how inept people on high positions react when they are in panic and lack the experience to work out this situations.
    Reply
  •  
    Oct 05 01:10 PM
    Look out as ordinary people pull their deposits from Wacho this week following the injunction issued in New York. With the problems developing over the last 24 hours in Europe, Cash, and I mean green bills in hand as scary as that sounds, is king. The psychology on the street in America (just got back from Europe on THursday) is absolutely frightening!!
    Reply
  •  
    Oct 05 06:18 PM
    Don't complain about the ignorant, incompetent, greedy politicians as they are just being politicians and you have given them all of this power over our economy. All these politicians live in homes outside of the government pay because of kickbacks.

    Time to give the next president, whomever that may be, the line item veto, then put on a full court press to rid Congress of the professional term seekers and enact Congressional term limits. This may not answer all of out problems but two of the most egregious professional politicians, Chris Dodd whose father got chased out of office, and Barney Frank whose addition to the discourse is to insult his adversaries which Bill O'Reilly shoved down his fat throat and the fat slob ran off the set. What a "guy?".

    Rid of us all these "experienced"... policians and we wouldn't have the current credit crisis.



    Reply
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