S&P puts Wells Fargo on negative watch, Wachovia on developing watch

Standard & Poor's said it placed Wells Fargo Corp.'s long-term ratings on CreditWatch negative and revised the CreditWatch listing of Wachovia Corp. to developing from negative following Wells Fargo's announcement that it plans to acquire Wachovia in a stock transaction valued at $7 per share.

Citigroup Inc. has alleged that the Wells Fargo/Wachovia agreement violates an exclusivity agreement in its earlier announced proposal to acquire Wachovia's retail bank, corporate and investment bank and wealth management businesses, the agency noted.

The acquisition would greatly enhance the geographic span of Wells Fargo's banking franchise and make Wells Fargo the nation's largest core deposit banking institution, S&P said.

However, the CreditWatch negative reflects the uncertainty surrounding core earnings and capital levels after this acquisition closes and the integration issues related to the size and scale of Wachovia relative to Wells Fargo, the agency said.

As for Wachovia, S&P said it will raise its ratings so they equal Wells Fargo's ratings if the acquisition closes. Alternatively, the ratings could be lowered if the acquisition doesn't close, reflecting the agency's expectation for lower earnings and capital pressures driven by mortgage credit stress at Wachovia if it remains an independent entity.

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