Citi drops Wachovia bid

October 10, 2008
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, WASHINGTON, October 10 – Citigroup has said it was ending court efforts to block a merger of banking rivals Wachovia and Wells Fargo, but vowed to press its claim for breach of contract damages.

"Citi believes that it has strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisors and others for breach of contract and for tortious interference with contract," the US-based global financial group said in a statement.

"Citigroup plans to pursue these damage claims vigorously on behalf of its shareholders. However, Citigroup has decided not to ask that the Wells Fargo-Wachovia merger be enjoined."

Citi, which has sought 60 billion dollars in damages in a lawsuit claiming its merger with Wachovia was illegally ended, said it was prepared to go ahead with its takeover but that it had reached no agreement with Wells Fargo in several days of talks.

"The dramatic differences in the parties\’ transaction structures and their views of the risks involved made it impossible to reach a mutually acceptable agreement," Citi said.

In a statement, Wells Fargo confirmed its talks with Citigroup were over, and that its tie-up with Wachovia would proceed without any government financial help, with completion expected by the end of the year.

Wells Fargo chairman Dick Kovacevich said the merger would produce "an immensely strong, stable financial services company that will carry on Wachovia\’s proud tradition of being one of the very best financial institutions in the world".

After agreeing to a US government-backed deal forged on September 28 with Citi, Wachovia reversed course and announced its preference for Wells Fargo.

The New York State Supreme Court granted an injunction to Citigroup, which claimed Wachovia illegally backed out of the exclusive deal.

The state\’s appellate court overturned the injunction, however, drawing praise from Wells Fargo and Wachovia.

The parties then agreed to halt action for several days to discuss the matter, with regulators involved as well.

Wachovia, the fourth-largest US bank by assets, with headquarters in Charlotte, North Carolina, faced a near collapse of its share price and weakening confidence because of its exposure to the subprime mortgage crisis.

New York-based Citigroup agreed to assume up to 42 billion dollars of losses from a pool of 312 billion dollars of loans held by Wachovia. The Federal Deposit Insurance Corp. meanwhile pledged to absorb losses beyond that and take a stake in Citigroup.

The planned acquisition by San Francisco-based Wells Fargo, which traces its roots to the Wild West and the 19th century gold rush in California, would give it the biggest network of branches in the United States.
Wells Fargo offered 15.1 billion dollars in an all-stock deal to buy all of Wachovia, and stressed that its proposal did not have any government involvement or taxpayer risk.

Citigroup offered to pay 2.16 billion dollars in stock for Wachovia\’s banking activities and some of its debts.

When the merger is complete, Wells Fargo said, the combined bank will have 1.42 trillion dollars in assets, 787 billion dollars in deposits, 48 million customers, 258 billion dollars assets under management in mutual funds and 280,000 employees.

"The merger will create the nation\’s premier coast-to-coast community banking presence with community banks in 39 states and the District of Columbiam," it said.

Wachovia chief executive Robert Steel said the merger would create "one of the strongest financial firms in the world".

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