Description

A 16 percent spread on a deal which has already closed is available in
the "Wachovia" preferred shares.  Under the terms of the merger which
closed just prior to year end, all the Wachovia preferreds became
direct obligations of Wells Fargo.  The Wachovia B preferred has a
6.375 coupon and closed on 1/21/09 at 16.35, a yield of 9.75.  The Wells
Fargo K preferred has a 5.85 coupon and closed on 1/21/09 at 17.47, for
a yield of 8.37.  Both have $25 par amounts.  The yield differential
(and the price differential adjusting for the coupon difference) is 16
percent.  These are now preferreds of the same issuer, and at the same
level of the capital structure.  They are, by the way, senior to the
preferreds purchased by the U.S. government under TARP.  Buy the
"Wachovia," collect the yield and wait for the spread to close: if it
takes a year you make 26 percent on your money.  To hedge against
interest rate and credit risk, short the WPK.

Catalyst

Preferred buyers wake up, perhaps accelerated if the "Wachovia" starts trading under the Wells Fargo name.