CHARLOTTE — A few months after Wachovia Corp.'s newly hired president and chief executive vowed to keep it independent, his counterpart at the company that is buying Wachovia held a pep rally of sorts here Wednesday.
On a stage with columns of balloons sporting the Wells and Wachovia colors, Wells Fargo & Co.'s CEO, John Stumpf, sought to assure Wachovia staff members that, while there are "no guarantees," Wells would not undermine the Wachovia culture or weaken its work force.
"Let's define this merger on our terms," he said. "Let's do it right."
The event at Wachovia's headquarters site came two weeks after it seemed Wachovia's only salvation would be a government-assisted takeover by Citigroup Inc.
The rally was held in the same atrium where Wachovia president and CEO Robert K. Steel greeted employees in July after he was hired.
Also Wednesday, Wells reported third-quarter earnings that beat Wall Street expectations despite worsening credit quality.
Wells' deal to buy Wachovia was approved by regulators Sunday and is set to close in December. Citigroup had said Thursday that it would not pursue the government-assisted deal for the Charlotte company. Citi still has a lawsuit pending against Wells and Wachovia.
A Wachovia spokeswoman said Mr. Stumpf spent Tuesday meeting with Mr. Steel and senior executives and will spend the rest of this week touring Wachovia offices in Boston, New York, St. Louis, and Philadelphia.
In a media conference afterward, Mr. Stumpf briefly discussed Wells' third-quarter results. Its profit fell 6.3% from the second quarter and 23% from a year earlier, to $1.64 billion, because of rising credit costs and a previously disclosed loss tied to investments in Fannie Mae, Freddie Mac, and Lehman Brothers Holdings Inc. Earnings per share of 49 cents still managed to beat the average analysts' estimate by 8 cents, according to Thomson Reuters.
"Surely we feel the pain" of problematic loans, Mr. Stumpf said. "We still managed to produce very respectable numbers … and we're very bullish on the future." He responded to questions about the $25 billion government investment that Wells is set to receive, insisting that the $623 billion-asset San Francisco company "didn't need the help," pointing to the $15.1 billion it was willing to spend on Wachovia.
Mr. Stumpf declined to discuss how Wells would deploy the capital, though he said acquisitions are not an option, "We're not going to be buying more banks. … Frankly, right now our hands are full."
Howard Atkins, Wells' chief financial officer, said balance sheet growth — a key reason for the government's intervention — is something the company will pursue. During an interview, he also reiterated something Wells has repeated in recent quarters, that while more customers are struggling to pay off debt, there are fewer strong banks, minimizing competition for the best customers. The loss of competition is greater than the loss of good customers overall, he said.
Mr. Steel, who said during the media conference that he would not have an operating role at the combined company, said Wachovia's sale should allow it to become more aggressive with its own lending activities.
"We were always on the defensive" in recent weeks "and constantly on our back foot," he said. Court documents show that Wachovia, which is hobbled by bad mortgage loans and other credit issues, almost failed in the weeks before inking its deals with Citi and Wells.
Loan growth helped Wells post better-than-expected numbers in the third quarter. Revenue, while down 9.4% from the second quarter, rose 5.4% from a year earlier, at $10.4 billion. Average loans rose 3.2% from the second quarter and 15.3% from a year earlier, to $404.2 billion. Core deposits rose 0.5% from the second quarter and 4.6% from a year earlier, to $320.1 billion. The net interest margin shrank 13 basis points from the second quarter but expanded by 24 basis points from a year earlier, to 4.79%.
Looming over the third-quarter performance was deteriorating credit quality. The provision for loan losses fell 17.2% from the second quarter and rose 180% from a year earlier, to $2.5 billion, including a $500 million addition to reserves to largely address issues in its consumer businesses. Net chargeoffs rose 31.9% from the second quarter and 124% from a year earlier, to $2 billion, or 1.96% of average loans. Nonperforming assets rose 20.4% from the second quarter and 97.6% from a year earlier, to $6.29 billion. Noninterest income fell 22.8% from the second quarter and 13% from a year earlier, to $4 billion, largely because of the already disclosed $646 million in impairment charges from its investments in Fannie Mae and Freddie Mac. Noninterest expense fell 5.6% from the second quarter and 3% from a year earlier, to $5.5 billion.