Apparently, Wachovia, a semidefunct "financial institution", is the subject of a hot dispute between Wells Fargo and Citigroup. Both companies bid for Wachovia, and Citigroup claims an exclusivity agreement did not allow the Wells Fargo bid. Citigroup now calims they are abandoning their bid and are instead going to sue for $60 billion. Apparently, these guys are really looking aggressively for cash. To add to the zaniness, the National Republican Congressional Committee has received a last-minute $8 million loan from Wachovia at a time when they are lending to few others. The loan is to be used to support flagging Republican campaigns for seats in the House of Representatives. Given that the US government is a party to either deal, putting in bailout funds to limit losses to the buyer from Wachovia's poorly understood liabilities, there are massive conflicts of interest at work here.
The story could also have relevance to election races in North Carolina, where plummeting Republican fortunes connected with the financial crisis and local shortages of gasoline could lead to loss of elections for governor and US Senate, as well as the loss of at least one House seat, which happens to include Wachovia's headquarters in downtown Charlotte.
http://www.bizjournals.com/triangle/stories/2008/10/06/daily49.html
Citigroup cedes Wachovia to Wells Fargo, but will seek $60B in damages
Triangle Business Journal - by John Downey Senior Staff Writer
Wells Fargo & Co. has apparently won the battle for Wachovia Corp.
Citigroup has withdrawn from negotiations brokered by federal regulators that sought a compromise to the competing bids from Wells and Citigroup.
The issue is likely to go to court. But Citigroup says it will no longer seek to block Wells’ proposed $15.1 billion purchase of Wachovia.
However, Citigroup does plan to seek damages for Wachovia’s decision to choose Wells over an earlier agreement it had made to sell its banking operations to Citigroup for $2.1 billion.
“We did not seek the Wachovia transaction; Wachovia brought it to us,” says Citigroup CEO Vikram Pandit in a prepared statement. “Our focus remains on capitalizing on our global strengths. We will continue to apply the same discipline we employed in this and other recent transactions to future acquisition opportunities.”
Wells says it has immediate no comment. Wachovia says it is preparing a press release of its own.
Christina Pretto of Citigroup says the bank will seek the $60 billion in damages it has claimed from the deal gone sour. That case will proceed, she says, in New York Supreme Court. She could not say when hearings might be held on Citigroup’s claims.
But with Citigroup no longer trying to enjoin Wells and Wachovia from going ahead with the deal, the case will no longer be on the fast track. And cases in federal court and North Carolina state courts over efforts to block Citigroup’s interference with the Wells deal appear unnecessary following Citigroup’s announcement.
The Wachovia-Citigroup deal announced Sept. 29 included an exclusivity agreement that prevented Wachovia from negotiating an acquisition by anyone else.
On Oct. 2, Wachovia got an offer from Wells. That deal called for the sale of the entire bank holding company to Wells for $15.1 billion. The Wachovia board approved that deal early Oct. 3.
Wells had insisted there is no bar to its deal with the Charlotte-based bank.
Wachovia spokeswoman Christy Phillips-Brown released a statement Sunday defending the Wells deal. Wachovia insisted the agreement, which involved no federal guarantees, was proper and valid. And Wachovia said it remained open to a new offer from Citigroup.
Federal regulators first stood by the original deal. Citigroup went to the New York Supreme Court on Oct. 4, getting a temporary injunction blocking the Wells deal.
Additional actions were filed in state and federal courts over the next two days. On Oct. 6, the banks agreed to suspend the legal battle to try and work out an agreement among all the parties.
The Wells deal was generally preferred by bank employees and in Charlotte. Wells said it would keep the bank intact. Because Wells has few operations on the East Coast, there were likely to be minimal job losses below the corporate level. And a promise to make Charlotte Wells’ headquarters for East Coast operations took some of the sting out of the sale of Wachovia. The price offered by Wells was also seven times what Citigroup had proposed.
And Wells is the stronger institution, says Tony Plath, who follows the banking industry at UNC Charlotte's Belk College of Business.
Wells has not been hit as hard as many of the nation's large banks by the mortgage crisis. And it's generally on firmer financial ground, Plath says.
He believes one reason federal regulators were so eager to pair Citigroup with at least a part of Wachovia was to shore up the New York bank and give the markets confidence about its operations. And Plath says Wells has better retail banking operations than Citigroup.
Citigroup has been a large investment bank that got into branch banking to strengthen its capital base with depoists, which are an inexpensive source of cash for its investment-banking operations. Wells and Wachovia both have investment-banking arms. But both are primarily branch banks.
If Wells combines with Wachovia’s 3,300 branches across the nation, it would rival, if not surpass, Charlotte's Bank of America Corp. as the country’s largest retail bank.
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