CITIFARGOVIA TALKS
Citigroup and Wells Fargo maneuvered through New York state and federal courts yesterday in their pursuit of Wachovia, while at the same time negotiating to carve up the troubled North Carolina-based bank.
The FDIC, which pushed Citi to seal the Wachovia deal a week ago, is trying to work out a compromise between the two suitors that would avoid leaving Wachovia without a firm deal for too long, sources said.
Among those involved in the negotiations are senior members of the FDIC and the Treasury Department, sources said.
A compromise could take several forms, including a payment to Citi for walking away or a promise by the FDIC that it would offer assistance in a future banking deal in which Citi may be involved, sources said.
The negotiations paralleled several legal battles, with Wachovia responding yesterday to a state judge’s order temporarily blocking its $14.8 billion sale to Wells Fargo with a lawsuit of its own, asking a federal judge in Manhattan to allow the deal to go through.
Citigroup boss Vikram Pandit had secured the order from Justice Charles Ramos late Saturday in an unusual ruling at the judge’s Connecticut home.
But after yesterday’s action in federal court, a state appeals judge tossed out Ramos’ ruling, which would have extended the time for Wachovia and Citigroup to complete their deal.
Earlier yesterday in federal court, Wachovia asked federal Judge John Koeltl to declare the Wachovia-Wells agreement valid under the new $700 billion federal bailout plan passed by Congress.
Koeltl said it “appears” Wachovia had the superior argument, but he declined to make a ruling on the dispute, giving the parties until tomorrow to file briefs on the matter.
Despite the legal maneuverings, most analysts believe Citi will have to at least match Wells’ offer if it wants to acquire Wachovia. That means boosting its bid by seven times the original amount, agreeing to acquire the entire company and possibly giving up the previous assistance promised by the Federal Deposit Insurance Corp.
Wells had agreed to purchase Wachovia in its entirety for $7 a share with no assistance from taxpayers. Sources close to the situation said Citi had offered to increase its bid “substantially” before Wells came in with its own bid, but nothing was ever put in writing to Wachovia’s board.
Losing the Wachovia deal would be a big blow to Citi, which has troubles of its own and is having a tough time competing against JPMorgan Chase and Bank of America, both of which have picked up battered financial institutions over the last few weeks. But getting into a bidding war with Wells, which is much more financially sound, could prove too expensive for Citi to handle, especially without government backing.
Legal analysts believe Wachovia broke the exclusivity agreement it had with Citi by striking the deal with Wells, but any damages owed to Citi could be hard to determine.