Acquired by Wells Fargo in 2008, Wachovia provided commercial and retail banking and trust services.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Wachovia Corporation is a financial company. Financial companies, by their nature, typically have high debt to equity leverage, which is not a meaningful analytical metric. We suggest you use the equity to assets ratio instead.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On January 1, 1996, the Corporation acquired First Fidelity Bancorporation (First Fidelity), a multi-bank holding company based in New Jersey. The merger will be accounted for as a pooling of interests. At December 31, 1995, First Fidelity had assets of $35,332,885,000, net loans of $24,934,436,000, deposits of $27,554,917,000 and net income applicable to common stockholders of $397,744,000. Acquisitions completed by First Fidelity are not material, and accordingly, have not been included herein. As a result of the merger, each of the 78,746,915 net outstanding shares of First Fidelity common stock was converted into 1.35 shares of the Corporation's common stock and common stock equivalents, with cash being paid for fractional share interests. In addition, the 2,963,820 net outstanding shares of First Fidelity Series B Convertible Preferred Stock were converted into a like number of shares of the Corporation's Series B Convertible Class A Preferred Stock having substantially identical terms as the First Fidelity Series B, the 350,000 outstanding shares of First Fidelity Series D Adjustable Rate Cumulative Preferred Stock were converted into a like number of shares of the Corporation's Series D Adjustable Rate Cumulative Class A Preferred Stock having substantially identical terms as the First Fidelity Series D, and the 2,965,200 net outstanding FFB Depositary Receipts (each representing a 1/40th interest in a share of First Fidelity Series F 10.64% Preferred Stock (74,130 net outstanding shares)) were converted into a like number of the Corporation's Depositary Receipts (each representing a 1/40th interest in the Corporation's Series F 10.64% Class A Preferred Stock) having substantially identical terms as the First Fidelity Series F.
The Signet acquisition was consummated on November 28, 1997, and is included in the combined data, as mentioned earlier. Signet, with assets of $11 billion, net loans of $7 billion, deposits of $8 billion, stockholders' equity of $990 million and net income of $73 million for the nine months ended September 30, 1997, moved First Union into the leading deposit share position in Virginia. First Union issued 1.10 shares of its common stock for each share of Signet common stock, or 67 million shares, to consummate the merger.
The pending acquisition of CoreStates, of Philadelphia, Pennsylvania, will create new opportunities to leverage our growing Capital Management and Capital Markets businesses in states that generate 36 percent of the nation' gross state product and in attractive consumer markets in which per capita income is 12 percent above the national average. We currently estimate that approximately 330 million shares of First Union's common stock will be issued in this pooling of interests accounting transaction. The merger agreement provides for the issuance of 1.62 shares of First Union common stock for each share of CoreStates common stock, subject to increase under certain circumstances. Using First Union's closing price of $52.4375 on November 17, 1997, the last business day before public announcement of the merger, the transaction would have been valued at approximately $17 billion. At December 31, 1997, CoreStates had assets of $48 billion, net loans of $35 billion, deposits of $34 billion, stockholders' equity of $3 billion and net income of $813 million. First Union expects to take after-tax, merger-related and restructuring charges of $795 million in 1998 in connection with the CoreStates merger.
On September 1, 2001, First Union Corporation ("former First Union") and Wachovia Corporation ("former Wachovia") merged in a transaction accounted under the purchase method. The new company adopted the name "Wachovia Corporation." Under the terms of the merger, each share of common stock of the former Wachovia was exchanged for two shares of common stock of the former First Union, resulting in the issuance of 407 million common shares. The common stock issued to effect the merger was valued at $31.15 per former Wachovia share, or $12.7 billion in the aggregate.
tockholders' equity increased $14.9 billion from year-end 2003 to $47.3 billion at December 31, 2004. The increase reflects the issuance of 298 million shares of common stock at a cost of $14.0 billion in connection with the SouthTrust merger.
In May 2006, the Company announced the signing of a definitive merger agreement with Golden West Financial Corporation ("Golden West"). The acquisition of this California-based retail banking and mortgage lending franchise was completed on October 1, 2006, and accordingly, the results in 2006 include a full year of Wachovia and three months of Golden West. The terms of this transaction called for 77 percent of a Golden West shareholder's common shares to be converted into 1.365 shares of the Company's common stock and 23 percent of a Golden West shareholder's common shares to be converted into $81.07 in cash. This was equivalent to 1.05105 shares of the Company's common stock plus cash of $18.6461 for each share of Golden West common stock. Based on the weighted average of the Company's closing prices for a period two trading days before the announcement of the merger and two trading days after the announcement (which includes the day of announcement) of $55.69, the transaction is valued at $24.3 billion. On completion of the merger, the Company issued 326 million common shares and $5.8 billion in cash to holders of Golden West common shares. Additionally, employees of Golden West held 8.3 million options which were converted into 11.4 million options of the Company. These options fully vested on October 1, 2006. The fair value of the options issued amounted to $344 million, which is included in the computation of the purchase price.
On October 3, 2008, Wells Fargo & Company and Wachovia announced they had entered into a merger agreement providing for Wells Fargo to purchase Wachovia in its entirety and without government assistance, in a stock-for-stock merger transaction. In addition, as announced on October 3, 2008, Wachovia entered into a share exchange agreement with Wells Fargo under which Wells Fargo agreed to acquire 10 newly issued shares of Wachovia's Series M, Class A preferred stock, representing 39.9 percent of the aggregate voting power exercisable by Wachovia common stockholders and Wells Fargo as holder of the preferred stock, in exchange for the issuance of 1,000 shares of Wells Fargo common stock to Wachovia. The share exchange was completed on October 20, 2008.