Wells to offer $10 billion in stock, half what was expected

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Wells Fargo & Co. is tapping Wall Street for just half the fresh capital the bank said it would need to back up its purchase of sickly Wachovia Corp.

Wells announced after the stock market closed Wednesday that it would issue $10 billion in new shares on Thursday, down from the $20 billion the company had previously said it would sell as part of the Wachovia deal.

Good news? You’d think; it’s less dilution for current shareholders. But something isn’t sitting well with investors: Wells’ stock fell to $30 in after-hours trading after tumbling $3.09, or 8.9%, to $31.68 in the regular session.

Wells could come back to the market later for more capital, of course. But it may just need less new money from Wall Street because it got an unexpected $25-billion capital boost from the U.S. Treasury last month, as previously announced. Those taxpayer funds are part of the government’s plan to bolster the finances of banks and encourage them to step up lending.

Wells, long one of the strongest of the biggest U.S. banks, had said it didn’t need the government’s money, which was in the form of a preferred stock investment that would pay the Treasury 5% a year in dividends. But Treasury Secretary Henry M. Paulson insisted that all the nation’s biggest banks participate in the plan to set an example for the rest of the industry.

In a conference call with investors Wednesday, Wells reiterated that it expected total credit losses of $60 billion on Wachovia’s $482-billion loan portfolio. Most of the losses ($35.8 billion) are tied to Wachovia’s notorious ‘Pick-a-Pay’ option-ARM home loans.

After a closer review of Wachovia’s portfolio in recent weeks, ‘We feel even more comfortable’ with the $60-billion maximum loss figure, Wells’ chief financial officer, Howard Atkins, said on the conference call.

And Wells continues to paint the purchase of Wachovia, which will take Wells coast-to-coast and make it the No. 2 U.S. bank in deposits ($713 billion, versus Bank of America Corp.’s $720 billion) as a huge long-term win for shareholders.

‘We could not think of a better deal and a better time for both Wachovia and for Wells Fargo,’ said John Stumpf, Wells’ CEO.

But given the action in the stock, investors apparently are going to need more convincing.