The Wachovia Watch: A New Savior Emerges as US Economy Barely Hangs On

San Francisco, CAOn the eve of what will likely be an historic vote in the US House of Representatives over the proposed $700 billion bailout for the nation's troubled economy, yet another bank takeover focuses additional attention on a remarkable week in the nation's economic history and further underscores the precarious health of the once-robust Wall Street.

This morning's announcement that Wells Fargo is acquiring Wachovia in an all-stock transaction would come as a surprise to shareholders of Citigroup, which had expected to be the winning suitor. On Monday, Citigroup agreed to acquire the banking operations of Wachovia for $2.16 billion in an arrangement steered by the US Fed. The deal, which carried the blessing of the Boards of Directors for both companies, was subject to Wachovia shareholder approval.

However, that agreement appears to have fallen by the wayside after Wells Fargo offered $15.1 billion for the beleaguered Wachovia. Key differences amongst offers by the competing suitors included an all-stock deal inherent with the $15.1 billion Wells Fargo offering, versus the $2.16 Citigroup carrot that was tied to the Federal Deposit Insurance Corporation.

The Wells Fargo takeover will not involve the Fed in any way.

According to provisions of the stock deal, Wachovia shareholders will receive 0.1991 share of Wells Fargo for every share of Wachovia they own. That's seen as an 80 percent improvement, at $7 per share, over Wachovia's closing price yesterday of $3.91. Compare that to the $10 plateau that was reached last Friday—the last trading session before the Citigroup deal was announced.

The deal will require a $10 billion charge to Wells Fargo to facilitate the merger and integration. However, principles with Wells Fargo expect to see an increase in earnings within the first year, once the acquisition closes. Given that there is no government involvement, any improvement in revenue will be within the sole purview of the company.

Wachovia shares were up $2.25, or 53 per cent, at $6.50 in pre-market trading, while Wells Fargo fell $1.40, or 3.8 per cent, to $35.31. Citigroup shares were down $3.10, or 13.2 per cent, to $20.35.

The deal comes at the end of one of the most turbulent weeks in the nation's history—a week that began with the failure of Congress to pass the Bush Administration's $700 billion rescue package. Markets plummeted, wiping out years of progress within investor portfolios with losses virtually doubling the value of the rejected Bill. Against a backdrop of the sale of the once-hale Washington Mutual, and a massive outcry from investors stinging from one of the steepest drops in the Dow Jones' history, the US Senate overwhelmingly approved a revised Bill, and implored their Congressional counterparts in the House to do the same.

In the last 24 hours the nation has enjoyed the distraction of the US Vice-Presidential debate. That historic piece of television now over, all eyes are back on the House of Representatives as investors look to Vice-Presidential nominee, Governor Sarah Palin (R-Alaska) and her colleagues in the House to get the job done and approve a Bill that President Bush will likely sign into law prior to the end of the week.

Before the world markets open Monday, and before further damage is done to both Wall Street, and Main Street. The latter has been hit hard. Moments ago it was announced that the US Economy, such as it is, shed 159,000 jobs in the month of September alone, representing the ninth straight monthly decline in nonfarm employment.

The September numbers represent the steepest decline in five years.