3rd UPDATE: Wells Fargo Prices $10.65 Billion Offering To Repay TARP

Wells Fargo & Co. (WFC) on Tuesday morning priced a stock offering of $10.65 billion, intended to help it repay $25 billion in government support. The bank said it could raise more capital to avoid selling non-strategic assets.

The San Francisco bank's stock issue priced 426 million shares at $25 each before the market opened. Wells Fargo agreed to raise at least $10.4 billion in new capital as part of a deal with regulators to exit the U.S. Treasury Dept.'s Troubled Asset Relief Program, or TARP. Wells Fargo accepted $25 billion in TARP funds last year when the federal government rescued the U.S. financial system.

Shares of Wells Fargo recently traded up 1.8% to $25.94.

Wells Fargo said Tuesday during a conference call with investors that it could raise an additional $1.56 billion as one way of meeting additional government demands. Under the TARP exit agreement, Wells Fargo agreed to either sell $1.5 billion in assets by the end of 2010, or raise an additional $1.5 billion in capital. If Wells Fargo chooses to sell assets, Chief Executive John Stumpf said Tuesday those assets will not be strategic businesses.

Wells Fargo also said it will use the capital plan to resolve an outstanding obligation tied to its purchase of Wachovia Corp. last year.

When Wells Fargo agreed to buy Wachovia in 2008 as the Charlotte bank crumbled under loan losses, Wachovia already had in place a joint venture with Prudential Financial Inc. Under that joint venture, which included a securities brokerage, Wachovia agreed that Prudential could sell its minority interest in the venture to Wachovia by Jan. 1, 2010, and in June, Prudential said it would exercise that right.

Wells Fargo has not yet disclosed the value of that interest in the venture, but the bank said previously it would pay Prudential with some undetermined combination of cash and Wells Fargo stock, which could dilute investors. But on Tuesday, Wells Fargo said it would pay cash.

Wells Fargo struck its headline deal with the government after Bank of America Corp. (BAC) and Citigroup Inc. (C) both signed agreements with regulators to free themselves of the additional layers of government oversight that have accompanied financial support from taxpayers. Executives from the banks have praised the federal government's rescue as effective, but have also chafed against restrictions on top executives' lucrative compensation packages as well as the government's stress tests, or close examinations, of the largest financial institutions.

As Wells Fargo works to meet regulators' demands, Stumpf said the bank is also trying to minimize diluting shareholders, whose original shares of the company's profits and assets are reduced when the company issues new stock.

"We want to minimize the dilution," Stumpf said during the conference call.

PNC Financial Services Group Inc. (PNC), now the largest American commercial bank to carry government support, has also said repeatedly it's determined to pay back its $7.6 billion in public funds "in a shareholder-friendly way." PNC said recently that other banks' decisions to exit TARP had not affected PNC's plans to pay back TARP next year.

Stumpf on Tuesday said Wells Fargo got the best deal it could for its investors. "This was the most shareholder-friendly way, we believe, that we could do this," he said.

-By Marshall Eckblad and Lynn Cowan, Dow Jones Newswires; 201-303-0544; marshall.eckblad@dowjones.com

(Matthias Rieker contributed to this report.)

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