Fitch Ratings: AG Edwards Buy a Credit Neutral for Wachovia.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Today, Wachovia Corporation (rated 'AA-/F1+' by Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. ) agreed to acquire A.G. Edwards, Inc. (AGE) for approximately $6.9 billion. While the enhancement to the retail brokerage franchise is viewed positively, Fitch anticipates that the transaction, in and of itself, will be neutral to Wachovia's ratings, and will comment further when additional information becomes available. Fitch will particularly focus on how this transaction influences Wachovia's approach to capital management, including share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. , dividends and capital mix. The increased size of the securities operations heightens the importance of Wachovia's approach to capital allocation for this business. Wachovia will combine the retail brokerage business of AGE into its Wachovia Securities Wachovia Securities, located in Richmond, Virginia (soon to be moved to St. Louis), is the third largest brokerage firm in the United States as of 2006 with $689 billion retail client assets under management. It is a subsidiary of Wachovia Corporation. , LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control unit. This transaction will substantially increase the scale of Wachovia Securities, placing it comfortably within the top three U.S. retail brokerage firms on various measures including net revenue, client assets (combined $1.1 trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. ) and registered reps. Wachovia anticipates significant cost savings which Fitch views as achievable in light of AGE's existing cost levels and Wachovia's integration track record. More challenging will be Wachovia's ability to retain the most productive brokers and their clients' assets. The agreement calls for a fixed number of Wachovia shares (0.9844 shares) plus $35.80 in cash for each AGE share (which should result in a price of about $6.9 billion), 60% in Wachovia stock, the remainder in cash. The transaction is targeted to close on Oct. 1, 2007, and will create approximately $4.5 billion in additional goodwill for Wachovia beginning in 4Q07. Similar to Wachovia's approach to its acquisition of Golden West Financial Corp in 2006, the company expects pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma capital ratios to remain very close to current levels and within Wachovia's previously stated targets, in part due to the use of newly issued common stock for much of the purchase price. Of note, Wachovia Securities, LLC is majority owned by Wachovia Corporation (62%) while 38% is held by Prudential Financial. Possibilities exist for Prudential Financial to maintain or reduce its proportional ownership, or to exit via sale of its ownership to Wachovia, under the existing terms of the joint venture agreement. Wachovia relies heavily on its proprietary economic capital models to determine its target ratios. Fitch considers many factors when assessing appropriate capital levels, including economic capital, and will evaluate the capital aspects of this transaction in more detail as better information becomes available. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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