By Joe Bel Bruno and Kathy Shwiff
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)-Wells Fargo & Co. (WFC) on Monday became the last of the nation's biggest banks to unveil plans to repay $25 billion of government bailout funds it received at the height of the global financial crisis.
The San Francisco-based bank will raise $10.4 billion in a share sale so it can exit the Troubled Asset Relief Program, and the balance will be paid out mostly through cash.
The announcement came after Citigroup Inc. (C) reached a similar agreement with banking regulators earlier in the day, and follows similar moves by JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC). Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), the nation's last remaining big investment banks, also repaid government bailout funds this year.
Wells Fargo, now that it is close to being free from TARP's restraints, also announced Monday evening it will use cash to buy out Prudential Financial Inc.'s non-controlling interest in a brokerage joint-venture that includes Wells Fargo Advisors LLC. Terms of that deal were not announced.
Repaying TARP allows Wells Fargo to avoid increased oversight by regulators, which are placing scrutiny on everything from executive pay to making acquisitions. Wells Fargo, the nation's fourth-largest bank, has pledged to find a way to get out from under TARP without a major dilution to shareholders ??? the largest being billionaire Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB).
"TARP stabilized our country's financial system when confidence in financial markets around the world was being tested unlike any other period in our history," said Wells Fargo Chief Executive Officer John Stumpf. "We're ready to fully repay TARP in a way that serves the interests of the U.S. taxpayer, as well as our customers, team members, and investors."
Stumpf and other bank executives have maintained since receiving taxpayer support last year that it was uncomfortable with extra levels of government involvement in its affairs.
As part of Monday's announcement, Wells Fargo said it will also raise $1.35 billion by issuing stock to Wells Fargo benefit plans and in lieu of some 2009 incentive cash and other compensation to employees. And it will increase equity by $1.5 billion through asset sales to be approved by the Federal Reserve's board of governors.
Repaying TARP will eliminate $1.25 billion in annual preferred stock dividends and will slightly increase earnings next year. But the repurchase of TARP preferred stock is expected to reduce income available to common shareholders in the fourth quarter by $2 billion.
There were concerns that Wells Fargo would have difficulty balancing a TARP repayment and paying Prudential for its 23% stake in the brokerage unit, valued at about $5 billion. Many analysts expected Wells Fargo would be forced to use shares to take full control of the unit.
The steps outlined by Wells Fargo come after the CEOs of America's top banks met with President Obama in the White House about lending practices, and a progress report about the industry itself. Earlier Monday, Citigroup also rolled out plans to repay $25 billion of bailout funds.
Citi felt exiting TARP was a competitive necessity because compensation in its investment banking business was under pressure, and because it is perceived as one of the nation's most troubled banks.
Though Wells Fargo is a commercial bank without the pay scale associated with capital markets operations, it did lag behind other commercial banks that eagerly repaid TARP to demonstrate their health, like U.S. Bancorp (USB), BB&T Corp. (BBT), and even Capital One Financial Corp. (COF).
Wells Fargo has been vulnerable to the impact of the financial crisis and the recession because of its large portfolio of adjustable rate mortgages it got with the purchase of Wachovia Corp. last year.
After redemption of the preferred stock, the Treasury Department will continue to hold warrants to purchase about 110 million common shares at an exercise price of $34.01 per share. Wells Fargo's shares rose 2%, to $26 in after-hours trading. The stock has lost 5% in the past year.
(Matthias Rieker in New York contributed to this story.)-By Joe Bel Bruno and Kathy Shwiff, Dow Jones Newswires
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