Wells Fargo to Sell $10.4 Billion in Stock, Exit TARP

Dec. 14 (Bloomberg) -- Wells Fargo & Co., seeking to shake the stigma of government bailout funds and keep up with its rivals, plans to raise $10.4 billion in a share sale so it can get out of the Troubled Asset Relief Program.

The bank plans to return all of the $25 billion that taxpayers invested last year, according to a company statement issued today. The exit from TARP would put Wells Fargo on the same footing as Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc., its largest competitors, which have already paid back the U.S. or announced plans to do so.

“TARP stabilized our country’s financial system when confidence in financial markets around the world was being tested unlike any other period in our history,” Wells Fargo Chief Executive Officer John Stumpf said in the statement. “We’re ready to fully repay TARP in a way that serves the interests of the U.S. taxpayer, as well as our customers, team members and investors.”

The San Francisco-based bank ranks fourth by assets and deposits in the U.S. Stumpf vowed this year to pay off TARP in a “shareholder-friendly” way, without elaborating on how that might be accomplished or saying whether current investors would have their stakes diluted. The biggest holder is billionaire Warren Buffett’s Berkshire Hathaway Inc.

Wells Fargo rose 8 cents to $25.49 in New York Stock Exchange composite trading today. The shares have fallen about 14 percent this year.

Prudential Stake

Wells Fargo also said it will pay cash to buy a 23 percent stake in its retail brokerage business from Prudential Financial Inc., according to a separate statement. Wells Fargo said in the past the stake could be acquired for cash or shares. The bank didn’t say how much it will pay.

In the share offering announced today, Wells Fargo didn’t price the common stock and didn’t say when the sale might take place. Underwriters including Goldman Sachs Group Inc. have an option to buy $1.56 billion in additional shares.

The Tier 1 common equity level will increase to 6.2 percent after the share sale, Wells Fargo said. Repaying TARP will reduce income available to shareholders by $2 billion in the fourth quarter, and will be “accretive to earnings” in 2010, according to the statement.

The bank also plans to raise $1.35 billion from a share sale to its benefit plans and $1.5 billion through the sale of assets, the statement said.

U.S. Holds Warrants

TARP began in October last year when former Treasury Secretary Henry Paulson persuaded nine of the biggest banks to sell $125 billion in preferred stock to the government to stabilize the financial system. After Wells Fargo repays TARP, the government would still hold warrants to buy 110 million common shares at $34.01 apiece.

Banks chafed under restrictions imposed by the program, which affect lending, foreclosures, pay and perks. Wells Fargo Chairman Richard Kovacevich initially said he didn’t want TARP money and later called government stress-tests tied to the program “asinine.”

The company said it will hold a conference call at 8 a.m. New York time tomorrow to discuss the offering.