Wachovia Corp. said Monday it will pay $3.42 billion for Westcorp, owner of one of the largest independent U.S. auto finance companies, making Wachovia the ninth-largest auto loan company.
The purchase will give Charlotte-based Wachovia, the fourth-largest U.S. bank, a foothold in California’s retail branch-banking market and mark its entry into the non-prime auto loan market — debt provided to less creditworthy borrowers buying new and used cars. Westcorp, also the holding company for Western Financial Bank, owns auto finance unit WFS Financial.
The transaction will allow the banking giant to offer services to 8,500 auto dealers, promising a lucrative source of banking revenue in areas such as commercial real estate lending, private banking services and the financing of dealer inventories.
The deal has Wachovia paying another $490 million for the 16 percent stake that Westcorp does not already own in WFS Financial, making the total purchase price $3.9 billion. WFS has about 950,000 customers and Westcorp has 19 retail bank branches in Southern California.
The merger, which is expected to be completed in the first quarter of 2006, follows a series of transactions in which large banks have snapped up specialty finance businesses. Bank of America announced this summer it will buy MBNA Corp., the largest independent credit-card issuer, and Washington Mutual said it will buy Providian Financial, a credit-card company.
“What you are seeing here is a number of banks looking to step up their origination of higher-yielding loans,” said Gordon Goetzmann, of First Manhattan Consulting Group, which advises banks.
Wachovia’s purchase of Westcorp is expected to contribute to Wachovia’s earnings in 2007. A spokeswoman for Wachovia said the merger may result in some job cuts, but she could not say how many or where they would occur. The bank is starting integration planning and those staff cuts will be decided on by the end of the year, the spokeswoman told the Associated Press.
Under the agreement, WFS will take on Wachovia’s name.
Wachovia said the combined business will be run by WFS President and Chief Executive Thomas Wolfe and based in Irvine, where Westcorp and WFS are based. Wolfe will report to Carlos Evans, head of Wachovia wholesale banking.
Westcorp was founded in 1972 by Ernest Rady. Rady will serve as chairman of Wachovia’s dealer financial-services business and chairman of California banking operations.