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Corporate fight: A complete review on Wachovia Corp- Citi, Charlotte bank, Wells Fargo and Vikram Pandit!

By Amarendra Bhushan for CEOWORLD Magazine Updated:October 6, 2008

Citi and Wells Fargo both were anxiously negotiating to buy Wachovia. So, fast forward … Citi came to the table and strongarmed, with the Fed’s & Treasury Department’s, along with FDIC, too, Wachovia to “sign this agreement.” I wouldnt trust Vikram Pandit…he sold a worthless hedge fund to Citi and then now heads. Pandit fits nicely with the Citi culture. Remember this is the organization that threw Jamie Dimon (now CEO of JPM) out on the street. CitiCarolina-based Wachovia might be carved out between two suitors Citigroup and Wells Fargo — under a solution being pressed by the United States government, a media report said today. In a sign that US officials are concerned about the increasingly volatile situation, the Wall Street Journal said, officials from the Federal Reserve were pushing hard for Citigroup and Wells Fargo to reach a compromise.

Under the leading plan being discussed on Sunday night, Citigroup and Wells Fargo would divvy up Wachovia’s network of 3,346 branches along geographic lines, with Citigroup getting Wachovia’s branches in the northeast and mid-Atlantic regions and Wells Fargo taking those in the Southeast and California, the paper said, citing people familiar with the talks.

Wells Fargo would take over Wachovia’s asset-management and brokerage units. Wells Fargo agreed to pay about $15 billion for all of Wachovia, a deal it prefers to Citigroup’s offer of about $2 billion for most, but not all, of the company. The fight comes after the bank’s board agreed to a takeover by Wells Fargo on Thursday, three days after Citigroup appeared to have agreed its own government-assisted deal with the company.

Citigroup moved to block the merger, claiming it had “legal rights” and had been giving Wachovia liquidity support throughout the week.Wachovia had committed not to negotiate with other parties until tomorrow at the earliest. Citigroup reportedly offered to significantly increase its bid, but that was rejected, according to the Wall Street Journal.

The legal battle comes at what some commentators suggest is the worst possible time for the US government. While its $700bn bank bail-out was pushed through Congress on Friday, it is still relying on America’s biggest remaining banks, including Citigroup and Wells Fargo, to support its plans and provide liquidity.

On attaining the court ruling, which Wachovia had tried to block, Citigroup said it would “continue negotiations with Wachovia on the previously agreed-to transaction”.

But unlike Citigroup’s original agreement to take over Wachovia, in which the Federal Deposit Insurance Corp agreed to shoulder potentially hundreds of billions of dollars in toxic loans, the plans being discussed Sunday night don’t entail either buyer receiving financial assistance from the US government, WSJ said quoting an unidentified person briefed on the talks.

Citi said late on Saturday that it had secured a temporary order from a judge of the New York state Supreme Court to extend until a further hearing next Friday an agreement under which it has exclusive right to negotiate with Wachovia, the sixth-largest US bank by assets. That agreement, signed last Monday, was overturned on Friday when Wachovia’s board declared it accepted a better price from Wells Fargo. Citi is believed to be seeking $60 billion in damages from Wells Fargo for collapsing a deal under which Citi was to buy Wachovia’s branch network for $2.16 billion (€1.56 billion) and absorb some $42 billion in loan losses. The deal did not include Wachovia’s retail brokerage or asset management business.

Wachovia’s shares had come under severe pressure following the failure of rival lender Washington Mutual. This prompted rescue talks brokered by the Federal Deposit Insurance Corporation (FDIC), a public body that protects bank deposits. As part of the Citi deal, the FDIC was to take on any loan losses in excess of $42 billion in exchange for a $12 billion stake in Citi. Such terms were trumped by the proposal from Wells Fargo, which had been involved in discussions last weekend with the FDIC about a possible rescue of Wachovia. The Wells Fargo deal values Wachovia at $15.1 billion, keeps its business intact and requires no financial assistance from the US government.

Regulators and bankers, it said, are scrambling to quickly end the drama in part out of concern that if Wachovia remains in limbo when US markets open Monday morning, it could further spook already jittery investors and bank customers. At stake is the $339 billion in Wachovia deposits and its network of more than 3,300 branches throughout the country that would solidify the winner as being in the top tier of U.S. retail banking.

Hoping to increase the likelihood that an agreement will be reached, Wachovia was excluded from the weekend talks. The U.S. Federal Reserve is brokering discussions between Wells Fargo & Co and Citigroup Inc over which of the banks will buy Wachovia Corp’s assets. The Fed is pushing the two banks to compromise by potentially carving up Wachovia between them, the Wall Street Journal reported. Wachovia, the sixth-largest U.S. bank, has been hobbled by the credit crisis but has an attractive branch network.

By the way, I will vote for Palin since she represents the anti-Wall Street movement and you can bet that there will be some congressmen succumb to this Wall Street Bailout also. I never thought that there would be a person shake up the Obama forces as much as Palin has.

Actually Citi Bought Pandit’s hedge fund to get him over to their company. They thought paying a premium for it was worth having him head their company… Citi has got a real beef here … Wells will pay dearly in penalties if their play goes forward. Track my comment, mark my words … they are way out of bounds here … only saving grace is if Fed, FDIC broker a split with Citi getting retail it covets.

I do not mind that the wolf tried to eat the carcus. It is the way of the world, and of certainly “wall street.” To bad for citi that the agreement did not the “binding clause” that many agreements have. But then again, who needed a binding clause for a company that was about to be “gone.”

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