Wells Fargo--Wachovia Deal Gets Fed Go Ahead

The acquisition by Wells Fargo & Company of Wachovia Corporation, which secured Federal Reserve System approval Sunday, puts the company on track to be the fourth-largest insurance broker in the United States, a consultant said.

The deal, which was worth more than $15 billion at the time of its announcement when Wells Fargo was trading at $35.16 a share on Oct. 2, would not only merge the two companies banking operations but also bring together the insurance brokerage operations, something an earlier deal between Charlotte, N.C.-based Wachovia and Citigroup Inc. would not have done.

Robert J. Lieblein, managing partner with Hales & Company in Harrisburg, Pa., called it “a great opportunity” for Wells Fargo to expand its footprint and put itself in place as not only the largest bank-owned insurance brokerage firm, but also the fourth largest insurance broker in the United States surpassing Arthur J. Gallagher.

He said San Francisco-based Wells Fargo is well known for cross selling to its customers and this presented even greater opportunities “to take the Wachovia insurance practice and incorporate it into the Wells Fargo culture.”

There may be some overlap in insurance brokerage services in some areas of the Southeast and Mid-Atlantic, but overall, it would mean a significant expansion of insurance brokerage territory for the firm, Mr. Lieblein said.

In 2005, Wachovia acquired Palmer & Cay, doubling the insurance revenues of the bank, he pointed out, making it a national broker, putting it in the same business league as Wells Fargo with mid-market and some large market accounts.

This will not be a game changer for most brokers, said Mr. Lieblein, in that they will continue with their respective growth and merger and acquisition strategies, but “I look at what Wells does from coast to coast and they are extremely strong throughout the nation.”

This could cause Wells Fargo to slow down some of its acquisition as it works through the integration of Wachovia, he suggested, but that does not mean they will stop acquisitions.

Today, Wells Fargo Insurance Services announced it had acquired EMAR Group, headquartered in Livingston, N.J., with an office in Florida. Terms of the deal were not released.

EMAR serves middle market and upper middle market clients, with a concentration in transportation, construction, real estate and financial institutions. It also has access to specialty market program in small business niches including the limousine services and restaurant industries.

While there are some integration risks, Mr. Lieblein pointed out that Wells Fargo did a very good job of integrating ABD Insurance Services with its operations when Wells Fargo acquired Greater Bay Bancorp in 2007. He felt that with that experience they should have a leg up on putting a large merger together.

Last year, Wachovia reported insurance revenues of $422 million and Wells Fargo reported just under $1.3 billion, noted Mr. Lieblein. Wachovia has 42 insurance offices in 20 states, while Wells Fargo has 171 offices in 37 states.

Gallagher and Wells Fargo were close in size, but this acquisition will clearly put Wells Fargo in fourth place, said Mr. Lieblein.

“Assuming they can integrate this well and adopt some of the Wells Fargo cross selling culture, I think this is a tremendous opportunity for Wells Fargo,” he said, adding that one impediment to Wells Fargo growing its insurance brokerage arm along the East coast has been a lack of bank networks.

In late September, a deal was announced between Wachovia and Citigroup for $2.16 billion of Wachovia's banking services that would have spun off its other division, including insurance brokerage, into a separate company.

However, Wells Fargo later emerged saying it had a definitive deal with Wachovia. A legal battle ensued that ended with Citigroup giving up efforts to acquire Wachovia, but saying it would seek $60 billion in damages.

In conference calls and filing with the Securities and Exchange Commission, Wells Fargo said it expects to complete the Wachovia deal during the fourth quarter of this year.

The combined companies will have $1.42 trillion in assets, $787 billion in deposits and 48 million customers, Wells Fargo said.

Representatives from both companies said they could not discuss the deal because details of the merger between the insurance services have yet to be worked out.

Vince Scanlon from Wachovia Insurance Services said, “It is too early to talk about specifics because details of the transaction are still being finalized. However, we are excited about the prospects of combining the twelfth largest insurance broker with the fourth largest insurance broker.”