Wachovia Leaves Citigroup at the Altar

If you’re still trying to sort through what the Wachovia-Citigroup deal means – don’t bother.
In a dramatic shift, Wachovia has now agreed to sell itself to Wells Fargo & Co. in a $15.4 billion takeover that will require no government assistance – scrapping a deal struck earlier this week that would have split the Charlotte-based financial services company.
On the recordkeeping front, the Wells Fargo deal represents a major shift. Wells Fargo has acquired all of Wachovia, including WRS and Wachovia Executive Benefit Services – as well as Wachovia Securities, the nation’s third largest brokerage firm, and Evergreen Asset Management. The $2.16 billion Citigroup deal left those entities “behind’ as part of a significantly smaller Wachovia Corporation (see Wachovia Retirement Stays in Acquisition Deal).
Commitment to Retirement Plans
Just as significantly, Wells Fargo generally, and Wells Fargo Chairman Dick Kovacevich specifically, have a long-standing appreciation for, and commitment to, the retirement plan services market, going back to the days when he led Norwest Bank (see Hard Core: Wells Fargo’s Kovacevich makes the case for recordkeeping)
.
Explaining the values of the new deal, Kovacevich noted in a press releasethat “Wachovia’s brokerage and asset management businesses, which would have been left behind in the prior proposal, are tightly interwoven with Wachovia’s core banking business – and this agreement avoids the complexity and unavoidable loss of value in trying to separate them, which would have disrupted Wachovia’s team members and customers.’
According to PLANSPONSOR’s 2008 Recordkeeping Survey, WRS had 5,929 recordkeeping clients, covering more than 1.8 million participants (see PLANSPONSOR’s 2007 Recordkeeping Survey listing for Wachovia Retirement Services). . The vast majority of those clients were in the small and mid-market ($10 million and less in assets, less than 500 participants). While Wells Fargo’s recordkeeping footprint was smaller (2,259 recordkeeping clients, with just over 1.4 million participants, roughly three-quarters of its client base was also in the small and mid-market segments (see PLANSPONSOR’s 2007 Recordkeeping Survey listing for Wells Fargo).
Terms of the Deal
The Wells Fargo offer is for $7 a share in stock, based on Thursday’s closing price, 79% above where Wachovia shares finished. The Wall Street Journal reports that Wells Fargo also will assume Wachovia’s preferred stock and debt. In conjunction with the deal, Wells Fargo will issue $20 billion in new securities, mainly common stock.
Under terms of the agreement, which has been approved unanimously by the boards of both companies, Wachovia shareholders will receive 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock. To maintain its capital position, Wells Fargo plans to issue up to $20 billion of new Wells Fargo securities, primarily common stock. The agreement requires the approval of Wachovia shareholders and customary approvals of regulators.
Charlotte, North Carolina will be headquarters for the combined company’s East Coast retail and commercial and corporate banking business, while St. Louis will remain the headquarters of Wachovia Securities. In addition, three members of the Wachovia Board will be invited to join the
Wells Fargo & Company Board when the transaction is completed.
In announcing the acquisition, Kovacevich said, “We are combining the industry’s number one ranking customer service culture of Wachovia with the industry’s number one sales and crossselling culture of Wells Fargo. The best in service and the best in sales, an unbeatable
combination.’
A week ago, published reports indicated that Wells Fargo had said it was prepared to buy Wachovia for more than $20 billion, without government assistance. But late Sunday, the San Francisco bank abruptly changed its mind, setting into motion a desperate scramble through the night that ended with the government presiding over what the WSJ termed Wachovia’s “shotgun marriage’ to Citigroup early Monday morning.

2010 Funds Have Rough Quarter

It’s been a rough month for the markets, and a challenging quarter for 401(k) plan investments.

Consequently, it seems likely that a growing number of 401(k) plan participants—as well as plan sponsors and their advisers—will be curious to know how the target-date fund offerings on their menus have fared.

Varied Allocations

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Asset allocations in these target-date funds vary widely, of course, mirroring variances in the glide path philosophies that underpin them (see “Invest-O-Matic,’ “FAAF: Glide Paths – Getting From Here to There’)—and those variances are most evident in the target-date fund closest to the target date. That’s also the place/time when workers are potentially most vulnerable to the fluctuations in the market, of course.

According to Target Date Analytics (TDA), the “raw” average year-to-date performance of the four largest 2010 funds (the ones for folks closest to retirement) at September 30: -13.73%.

The following are returns provided by TDA based on Morningstar data. The four funds listed hold about 90% of all the assets invested in 2010 funds, according to TDA. Their performance for the periods indicated is presented alongside the PLANSPONSOR On-Target Defensive Index (OTI), one of four new benchmarks for target-date funds released by PLANSPONSOR.

Fund & ticker4 wks3 monthsYTD12 months 3 yr
Fidelity 2010 (FFFCX) -6.92% -8.62% -12.95% -13.60% 1.46%
T. Rowe 2010 (TRRAX) -7.56% -8.11% -14.00% -14.93% 1.95%
Vanguard 2010 (VTENX) -6.06% -6.32% -11.23% -11.30% N/A
Principal 2010 (PTTIX) -8.23% -10.38% -16.72% -18.68% -0.65%
PLANSPONSOR OTI 2010 -2.90% -3.12% -0.81% 1.69% 5.14%



More information about the PLANSPONSOR On-Target Indexes is available at http://www.tdbench.com/IndexData.html

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