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114 DONALD L. CROOKS, ROBERT S. GOODMAN, AND JOHN BURBRIDGE

• Known by Our Shareholders. “We’ll be known as a great investment. We’ll have
financial results, not only among the very best in the financial services industry, but
among the entire Fortune 500. Today, we’re the only bank in the United States with a
Moody’s credit rating of “Aaa” [the highest possible rating].
Wells Fargo also believes that competing effectively and ethically are both at the forefront
of its long-term objectives. Wells Fargo expects all of its team members (employees) to
adhere to the highest possible standard of ethics and business conduct with customers,
team members, stockholders, and the communities that it serves while complying with all
applicable laws, rules, and regulations that govern its business. Its aim is to promote an
atmosphere in which ethical behavior is well recognized as a priority and practiced
throughout the organization. The following statement by Richard Kovacevich, the
chairman and CEO, summarizes this emphasis: “Integrity is not a commodity. It’s the
most rare and precious of personal attributes. It is the core of a person’s—and a
company’s—reputation.”
Recent Performance
Wells Fargo has been a leading innovator in the use of the Internet and is in the forefront
of using e-commerce in the financial industry. Wells Fargo has been fortunate to sidestep
most of the subprime market mess and the accompanying derivative credit meltdown.
Senior management has shown keen acumen in not pursuing the easy path and has
moved forward to capture more and more of the mortgage and banking business in its
geographic area. Wells Fargo has a vision (noted earlier), and its strategies complement
that vision.
At the end of 2008, Wells Fargo was in an enviable position as the largest financial
institution headquartered in the western United States. It has an unbroken record of paying
increasing dividends since 1995, when it paid $0.0525 per share. In 2008, the dividend had
increased to $0.34 per share. A strong balance sheet and the ability to steer through the
pitfalls that plagued many of its larger competitors have allowed Wells Fargo a stronger
force in the banking industry in 2009. This is an important moment in its history as it con-
siders its future. The following information provides additional information concerning the
present:

The Wachovia Acquisition
In the fall of 2008, Wells Fargo considered acquiring Wachovia Bank. Wachovia, head-
quartered in Charlotte, North Carolina, had been a rising East Coast bank growing by
leaps and bounds over the previous decade. Since Wachovia’s merger with First Union
Bank a few years before, Wachovia seemed to be very well positioned to take the next
step in order to compete with the likes of Bank of America, Citigroup, Merrill Lynch,
and even Morgan Stanley. However, all was not well with Wachovia, which had its own
subprime mortgage problems. It was also overcommitted in credit default swaps, the
same issue that brought down Bear Stearns, Merrill Lynch, and Lehman Brothers.
Wells Fargo agreed to acquire all of Wachovia’s almost 2.2 billion shares of stock
for $7 per share. It also announced it would issue $20 billion in new shares to pay for
the transaction. Wells Fargo was purchasing an extensive banking system, especially
strong in the East but saddled with a large portfolio of subprime mortgages. So
although there would be continued downward pressure on housing prices, the value of
Wachovia could drop. Wells Fargo management could only make an educated guess of
potential loss.
Wells Fargo and Wachovia saw this outwardly as a tremendous marriage of conve-
nience presenting opportunities for one and survival for the other. Robert Steele, CEO of
Wachovia, stated that the deal would enable Wachovia to remain intact and preserve the
value of the integrated company without government support. Wells Fargo CEO Richard
Kovacevich was quick to add that “the agreement provides superior value compared to the
previous [Citigroup] offer to acquire only the banking operations of the company and
because Wachovia shareholders will have a meaningful opportunity to participate in the
growth and success of a combined Wachovia-Wells Fargo that will be one of the world’s