Real Crisis, Real Opportunity

Wells Fargo’s acquisition of Wachovia creates a banking powerhouse—despite historic financial market upheaval.

by Aaron Lazenby, May 2010

Although it’s commonly believed that the Chinese word for “crisis” is composed of two characters meaning “danger” and “opportunity,” a translation of “dangerous turning point” is actually more accurate. Regardless, that notion has gained credence for describing the perils of modern global business—replete with real crises and real opportunities. And the executives at San Francisco, California-based Wells Fargo & Company know this firsthand.

It was on September 7, 2008, that the U.S. government took full control of the federally subsidized mortgage lenders Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). The move was designed to protect these lenders from fallout caused by credit defaults on mortgage-backed securities, in which Fannie Mae and Freddie Mac had both invested heavily. But it was also widely considered to mark the opening tremors of the financial crisis that shook global markets in the late 2000s.

As chief financial officer at Wells Fargo, Howard Atkins was responsible for preparing his bank to handle the impact of the global economic downturn. “The CFO of any big bank is in the epicenter of what’s been happening in the financial markets in the last three or four years,” he says.

Fortunately, Wells Fargo—a diversified financial services firm serving consumers, small businesses, and commercial customers—was in a good position to ride out the coming economic upheaval. The bank was one of the market’s best-capitalized companies before the crisis began, and because of its steadfast focus on its customers, it was fortunate enough to have largely avoided the high-risk business activities that plagued many of its peers. This combination, plus the arrival of a surge of new customers looking for a safe haven for their investments, put Wells Fargo in a strong position as the market tumbled.

So when the federal government signaled concerns about the viability of Wachovia Bank in October 2008, Wells Fargo was prepared to save the troubled institution from collapse. This opportunity nearly doubled Wells Fargo’s size and market share—adding 20 million customers, US$812 billion in assets, US$448 billion in deposits, and 120,000 employees—in an acquisition that would prove to be the biggest in U.S. banking history.

Throughout the process, the collection, combination, and analysis of enterprise data played a significant role in the merger. And because Oracle software was a key part of the enterprise computing footprint of both companies, that data was accurate and available when executives needed it—both before and after the completion of the merger. The results for Wells Fargo 18 months later: increased stability and deposits, new customers and markets, and a business that ranks at the top of surveys about service and technology innovation.

Running the Gauntlet
Two months into the economic upheaval of 2008, Wachovia was in dire straits. Damaged by the same toxic securities that felled Fannie Mae and Freddie Mac, the bank faced a crisis of confidence as other institutions in the sector began to fail. Capital began to flee Wachovia for what investors believed to be safer harbors, and government regulators began to assess the health of Wachovia’s assets—and help devise a strategy that would keep the bank afloat.

The Federal Deposit Insurance Corporation (FDIC), which guarantees the safety of customer deposits, encouraged a merger of Wachovia with a healthier bank. Initially, one of Wells Fargo’s main competitors offered to acquire Wachovia if the government would assume some of the belabored bank’s debt. While that deal was being reviewed by stockholders and regulators, Wells Fargo executives decided to initiate their own offer for Wachovia. But they knew that time was short and that the offer had to make good business sense to be successful.

“That’s what kicked off that frantic, fun-filled 72-hour stretch without sleep,” recalls Atkins. “Basically, we had less than a weekend to put a price on what has turned out to be the largest acquisition in banking history. That’s unheard of.”

In the process of assessing the deal, members of Atkins’ team had to review data from both organizations to get an idea of how the merged companies would operate. For example, analysts compared data from Wachovia’s and Wells Fargo’s retail branches—information about loans, deposits, earnings, revenue, sales statistics, and more. The same analysis was applied to data taken from Wachovia’s and Wells Fargo’s commercial banking, wealth management, and other businesses, which was then combined to create a snapshot of what different business units would look like if the acquisition was completed.

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