In a plunging market, Wells offers $11 billion in new stock

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Department of Bad Timing: Wells Fargo & Co. picked a lousy two days to launch a huge new stock offering.

The biggest West Coast bank said today that it had sold 407.5 million new shares at $27 each, raising $11 billion in fresh capital to back up its purchase of rival Wachovia Corp.

The total was larger than the $10-billion goal Wells had initially set on Wednesday, when it announced the offering.

But to float the deal, the company’s underwriters priced the new stock 6.2% below today’s closing market price -- after the shares had tumbled 9.2% amid the broad market rout.

Worse for Wells and its current shareholders, today’s slump in the stock, to $28.77, followed a 9.8% drop on Wednesday.

The buyers of the new stock may well be getting a bargain. But it’s at the expense of current shareholders, who are facing heavier dilution of their stakes because of the deal terms.

Wells’ stock had closed at $35.11 on Tuesday. If the stock sale had been completed at, say, $34 a share earlier in the week, Wells would have sold 323 million shares instead of 407.5 million.

Today’s offering lifted the total of outstanding shares to 3.73 billion.

Last month, Wells had said it would raise up to $20 billion in capital to boost its balance sheet ahead of its planned takeover of Wachovia.

But in the interim, Wells got a $25-billion capital infusion from the U.S. Treasury, part of the government’s plan to bolster the finances of already-healthy banks in a bid to spur lending. Wells didn’t want the government’s investment, but Treasury Secretary Henry M. Paulson insisted that all of the nation’s biggest banks participate to set an example for the rest of the industry.

Given the discount required for Wells to raise the $11 billion today, we can only wonder what the market would have demanded to fund $20 billion.