ECON Wells Fargo blocked From Buying Wachovia

Citi: Wells Fargo blocked From Buying Wachovia

NEW YORK - The fight over control of Wachovia intensified Saturday, as a judge temporarily agreed to block the sale of the bank by Wells Fargo, Citigroup announced in a news release.

State Supreme Court Justice Charles Ramos issued the order blocking the sale of Wachovia Corp., which Wells Fargo & Co. had agreed to purchase in a $14.8 billion deal.

Citigroup Inc. accused Wells Fargo of trying to cut off its earlier takeover offer of Wachovia's banking operations for $2.1 billion in a deal struck with the assistance of the Federal Deposit Insurance Corp. On Friday, four days after that deal was struck, Wells Fargo said it was buying Wachovia.

The litigation pits two of the largest remaining financial institutions against one another as the ongoing credit crisis leads the federal government to arrange marriages and sales among banking entities.

Wells Fargo, Wachovia and Citigroup did not immediately respond to messages left late Saturday seeking comment about the temporary order blocking the sale.

The FDIC said Friday that it "stands behind its previously announced agreement with Citigroup." It also said it would review all proposals and work with regulators of all three institutions to resolve the tug-of-war.

Citigroup says it has an exclusivity agreement that bars Wachovia from talking with other potential buyers. Its shares fell sharply after the surprise announcement of the Wells Fargo-Wachovia agreement.

http://news.yahoo.com/s/ap/20081005/ap_on_bi_ge/wells_fargo_wachovia_52

Jarhead

Ok, correct me if I am wrong but isn't Wachovia a private business entity? How can the government make a deal with whatever bank "they" choose to take it over? Why can't Wachovia sell itself to whom ever it chooses? This isn't making a lot of sense to me.

Wasn't there..

Recently Wach. bought out A.G. Edwards, and I remember reading that they lied about something and they would not have been able to buy out A. G. Edwards if that "LIE" would have been known at the time. What implications are here? And why has not A. G. Edwards been mentioned in all of this Wach. stuff? Anyone know here what is really going on? Why is this fight going on and what does the FDIC have to do with it really? Thanks in advance!

I cannot answer the excellent questions ya'll have posed above. But:

Wachovia not being transferred to other ownership is a BIG thing. If their insolvency is not sucked up by a purchaser over this weekend, it will not be surprising to find Wachovia -- the nations 4th largest bank -- declared bankrupt in the next day or two.

I don't believe FDIC currently has the funds to cover insured losses at Wachovia, and so a Wach. bankruptcy therefore bankrupts the FDIC too.

Going down that trail, I see Wachovia being not purchased immediately as a catalyst for immediate systemic failure.

Then again, I'm an English major and teaching 4th grade math here at home fries my brain. I'll bet some other more savvy econ members of TB can come to this thread and flesh out my hypothesis much better.

FLF

.

Hmmm... something stinky there, for sure.

This was interesting:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaDYDblyAjTQ&refer=home

Excerpt:

Hobbled by $61 billion of losses stemming for the collapse of the mortgage market and ensuing credit contraction, Citigroup is in the midst of a takeover battle with Wells Fargo for control of Wachovia. A spokeswoman for Wells Fargo didn't immediately reply to requests for comment after Citigroup announced the court order.

``Wachovia believes its agreement with Wells Fargo is proper, valid and is in the best interest of shareholders, employees and the American taxpayers,'' said Christy Phillips Brown, a Wachovia spokeswoman. ``Under that agreement, Citigroup is always free to make a superior offer to Wachovia.''

Citigroup was seeking $60 billion in damages from Wells Fargo in connection with the proposed deal, the New York Times reported, citing a person briefed on the situation. Citigroup fell as much as 21 percent Friday in New York trading after Wells Fargo, the biggest U.S. bank on the West Coast, agreed to buy all of Wachovia for $15.1 billion. The bid trumped Citigroup's government-backed offer of $2.16 billion for Wachovia's banking operations.

~~~
Citi wants it's 60B from one or the other...

Actually, I believe it is Citibank at risk without the Wachovia transaction.

Either Wells buys all of Wachovia Inc (including both bank and securities divisions) or Citi buys the bank and leaves the securities division free standing entity, composed of the money management firm Evergreen and AG Edwards along with the other many regional firms which already comprised Wachovia Securities.

Either way, Wachovia's bank is backstopped - either by Wells (a AAA credit with Warren Buffet the largest shareholder) or by the FDIC (in the case of a Citi transaction).

If Citi doesn't do the transaction I would expect them to work closely with the FDIC to arrange a comparable shotgun marriage.


nanna/not investment advice


ETA: In view of the news about "damages" just posted, it seems Citi just wants the FDIC guarantees, with or without shotgun marriage

Kronos said:

Hmmm... something stinky there, for sure.

This was interesting:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaDYDblyAjTQ&refer=home

Excerpt:

Hobbled by $61 billion of losses stemming for the collapse of the mortgage market and ensuing credit contraction, Citigroup is in the midst of a takeover battle with Wells Fargo for control of Wachovia. A spokeswoman for Wells Fargo didn't immediately reply to requests for comment after Citigroup announced the court order.

``Wachovia believes its agreement with Wells Fargo is proper, valid and is in the best interest of shareholders, employees and the American taxpayers,'' said Christy Phillips Brown, a Wachovia spokeswoman. ``Under that agreement, Citigroup is always free to make a superior offer to Wachovia.''

Citigroup was seeking $60 billion in damages from Wells Fargo in connection with the proposed deal, the New York Times reported, citing a person briefed on the situation. Citigroup fell as much as 21 percent Friday in New York trading after Wells Fargo, the biggest U.S. bank on the West Coast, agreed to buy all of Wachovia for $15.1 billion. The bid trumped Citigroup's government-backed offer of $2.16 billion for Wachovia's banking operations.

~~~
Citi wants it's 60B from one or the other...

Click to expand...

Yep, there ya go.

The FDIC was already on the hook for $ billions in the arranged marriage, so Citi wants those guarantees, for sure.


nanna/not investment advice

Uh oh. The Saudis wouldn't go quietly.

Good point, BlueNewton.

Do I stand corrected? I sated earlier that Citi would next to fall because Wells Fargo out bid Citi, keep in mind Wachovia is a failed bank and taken over by the FDIC and then put on the block so Wachovia is just floating, so now it a fight to see who gets to consolidate this bank into their assets and the name Wachovia will disapear over few years. Just two more banks we should not do business with.

Right, as I read it, the big news is not whether or not Wachovia will go down, because eventually, the government will pull out all the stops to match them up with someone.

The big news is whether or not Citi can survive it its current form without Wachovia's deposits. If Citi goes down, we'll all feel it in one way or another.

dissimulo said:

Right, as I read it, the big news is not whether or not Wachovia will go down, because eventually, the government will pull out all the stops to match them up with someone.

The big news is whether or not Citi can survive it its current form without Wachovia's deposits. If Citi goes down, we'll all feel it in one way or another.

Click to expand...

I think you're hitting it right on the head. If WFG wants to buy wacky bank in it's entirety and is willing to pay more than Citi, without any government guarantees, I have to ask why would the government object? They supposed to be working for the taxpayer, yet they're subjecting us to untold billions in losses when a private co is ready to take that risk.

The answer is they know without those deposits, Citi is in big trouble. If they allow Wells to break the deal, they'll have a bigger mess to try,(if they even can,) clean up. Citi is one of the world's biggest banks. Really speaks of the depth of this crisis.