Wells Fargo to Buy Crocker From Midland for $1 Billion
Wells Fargo & Co. announced Friday that it will acquire British-owned Crocker National Corp. for $1.08 billion in the largest merger in U.S. banking history.
The deal, which was kept secret from Crocker officials until this week, will join California’s two oldest major banks and create a new institution with $48.6 billion in assets and 619 branches statewide.
The combined bank will be called Wells Fargo Bank, erasing the Crocker name from the California business scene after more than 100 years. The bank’s founder, Charles Crocker, was one of the four builders of the first transcontinental railway.
The sale comes only nine months after London-based Midland Bank completed its purchase of Crocker National, parent of San Francisco-based Crocker National Bank. The transaction allows Midland to free itself of its California subsidiary, which has been a drag on the British parent firm because of heavy losses from bad loans on real estate and agriculture and to the Third World.
However, Midland will be left with a $3.1-billion loan portfolio, including about $500 million in California real estate and agriculture “problem” loans and about $2 billion in old Crocker loans to Latin American countries.
For Wells Fargo, the Crocker purchase will culminate a long quest for a significant share of the rich retail banking market in Southern California. San Francisco-based Wells Fargo has 22% of the Northern California market, but just 2% of the deposits in the Southland.
“State lines don’t mean a lot to us,” Wells Fargo Chairman Carl E. Reichardt said. “Markets do. And in our judgment, Southern California is the most exciting marketplace in the world.”
Only about 70 of Wells Fargo’s 310 California branches are in the southern part of the state. Nearly half of Crocker’s 319 branches are in the Los Angeles, Orange County and San Diego markets.
The merger requires approval by federal bank regulatory agencies and by the shareholders of Wells Fargo and Midland. Midland’s shareholders, who complained vociferously about the purchase of Crocker, likely will gladly approve its sale, according to bank analysts here and in London.
The $1.08-billion agreement calls for Wells Fargo to buy all of Crocker’s common shares from Midland for $75 million in newly issued Wells Fargo common shares, $250 million to $350 million in preferred shares, and the remainder in cash.
The sale price represents roughly Crocker’s book value, which is assets minus liabilities. Most other recent bank sales have been for two to three times of book value, which indicates that Crocker has continuing expense and loan quality problems.
Wells Fargo’s Profits
Wells Fargo posted record profits of $190 million last year, while Crocker showed a modest profit in 1985 after two disastrous years. In 1983 and 1984, Crocker lost a combined total of $334 million, which was among the largest losses in U.S. banking history.
Wells Fargo officials said they expect the transaction to be completed by year-end and anticipate that Crocker will begin to contribute to company profits within three years.
They added that they have taken immediate steps toward consolidating the two banks. A hiring freeze was instituted and Reichardt informed employees to expect job cuts as a result of branch closings and the elimination of duplication in operations.
Crocker Chairman Frank V. Cahouet has been invited to sit on the combined bank’s board of directors but has not been offered a management position. A spokesman said Cahouet has not decided whether to accept the board seat. Cahouet refused requests for an interview Friday.
Feels ‘Mixed Emotions’
In a letter to Crocker employees Friday, Cahouet said he felt “mixed emotions” about the surprise announcement. He said he learned of the deal only last Monday in Washington from Midland Bank chief executive Geoffrey W. Taylor--after it had been agreed to by Midland and Wells Fargo officials.
He also told Crocker employees to expect job reductions but that Wells Fargo had assured him that it would try to integrate as many Crocker workers as possible.
Wells Fargo and Midland were able to achieve such secrecy by keeping discussions at the highest level and keeping investment bankers and lawyers out until the final stages, Wells Fargo sources said. Talks took place in hotels, restaurants and offices in San Francisco, London, New York and Washington.
Reichardt first approached Midland’s Taylor with an offer to buy Crocker last September. That overture was rebuffed, but Reichardt came back two months later and conversations began in earnest.
No ‘For Sale’ Sign
“Crocker didn’t have a ‘for sale’ on it,” said Ian Morison, Midland’s assistant general manager. “In no sense did we hawk it around.”
But the Wells Fargo offer proved a face-saving exit for Midland’s embarrassing foray into California consumer banking. “In financial terms, we came out even,” Morison said. “But I can’t say the episode has done a great deal for Midland’s reputation.”
One former Crocker executive said: “It’s sad, because the Crocker name goes back into the history and development of California and the Western United States railroad business. Some California history will be lost.”
The modern Crocker National Bank was born in the merger of Crocker’s San Francisco bank and Citizens Bank of Los Angeles in 1963. Crocker first entered the San Diego market in 1973 when it took over the assets of failed U.S. National Bank, once the flagship of former financier C. Arnholt Smith’s far-flung empire.
Wells Fargo is steeped in the history of the West, as well. Originally a stagecoach and freight express service, Wells Fargo & Co. opened its first banking office in San Francisco in 1852. The stagecoaches vanished with the railroads; the armored car services that carry the Wells Fargo name today are operated by an unaffiliated company.
Charles Crocker de Limur, 63, a great-grandson of Charles Crocker, interviewed Friday in San Francisco, said: “It’s a sad day if, as I am given to believe, the Crocker name will no longer be associated with banking.
“On the other hand,” he added, “I am glad the bank is returning to American hands.” De Limur resigned from Crocker’s board in 1980 to protest the bank’s acquisition by Midland.
Investors Enthusiastic
Investors responded enthusiastically to the deal. Midland’s stock rose about 14% on London exchanges while Wells Fargo’s rose $5.625 on the New York Stock Exchange to close at $67. Analysts said Wells Fargo stands to profit handsomely from the merger--if Crocker does not contain hidden problems.
“I like Wells a lot, but now I have to rethink it,” said banking analyst George Salem of the investment firm Donaldson, Lufkin & Jenrette. “You’re taking a lean and mean company and acquiring a company that has been very troubled. Those kinds of transformations don’t happen overnight.”
Moody’s Investors Service, a Wall Street bond-rating agency, placed the stock and debt issue ratings of both Crocker and Wells Fargo “under review,” a normal procedure for firms involved in pending mergers.
