WASHINGTON (Reuters) - The Federal Reserve Board on Tuesday said emergency conditions warranted its expedited action to approve Wells Fargo & Co's bid to acquire weakened banking rival Wachovia Corp .
The Fed issued its approval of the $12.2 billion deal in an unusual Sunday announcement on October 12, three days after Citigroup
In a statement issued on Tuesday detailing the decision, the Fed said:
"In light of the unusual and exigent circumstances affecting the financial markets, the weakened financial condition of Wachovia and all other facts and circumstances, the board determined in its order that emergency conditions existed that justified expeditious action on this proposal."
Treasury Secretary Henry Paulson, the Federal Deposit Insurance Corp and the Fed board determined that a seizure of Wachovia under the Federal Deposit Insurance act could result in "serious adverse effects on economic conditions or financial stability," the Fed said.
"The proposed acquisition of Wachovia by Wells Fargo as currently structured would avoid those adverse effects without reliance on assistance by the FDIC," it added.
The transaction would make Wells Fargo the second-largest depository organization in the United States, with total consolidated assets of $1.37 trillion and combined deposits of $731.1 billion in deposits.
This would initially appear to exceed the single-institution cap of 10 percent of insured U.S. deposits, which totaled $7.195 trillion as of June 30. But the Fed said that due to the anticipated rapid growth of bank deposits in United States amid current financial turmoil, the merged company's deposits was expected to be below the cap at September 30.
Furthermore, it said Wells Fargo has committed that the combined organization would not exceed the deposit cap.
The Fed said Wells Fargo has agreed to divest acquired branches in three markets due to excessive concentration of deposits in the combined firm. These are Davis and Grass Valley in California, and Fremont County in Colorado. It also will make divestitures in Monterey and Sonora, California, markets.
(Reporting by David Lawder; Editing by James Dalgleish)
