Citi takes Wachovia battle to court

October 5, 2008

, WASHINGTON, October 5 – US banking giant Citigroup said it had frozen out rival Wells Fargo from the takeover battle for troubled lender Wachovia after being blindsided last week in its attempt to complete the tie-up.

Citi said a court had granted an injunction late Saturday extending its exclusive rights to negotiate a merger with Wachovia after Wells Fargo muscled in on the talks last week and announced a takeover of its own.

"Citi has made clear it is prepared to resume negotiating in good faith to complete the transaction," Citi said in a statement.

After agreeing in principle to a US government-backed deal with Citi, Wachovia announced Friday its preference for Wells Fargo, saying the deal with the latter was best for shareholders.

Citigroup\’s share plummeted after the news, closing 18 percent lower at 18.35 dollars on Friday. Some analysts suggested the loss of the deal would leave question marks over the solidity of Citigroup\’s finances.

The New York bank issued a sharply worded statement afterwards, saying the agreement between Wachovia and Wells Fargo breached its exclusive takeover rights.

Wachovia had been in danger of failure after its shares lost more than 70 percent of their value in a year as investors feared a panic run on the beleaguered institution.

Many thought the fourth-biggest US bank by assets would share the fate of its rival Washington Mutual, which was seized by the government and sold to investment bank JPMorgan Chase in one of the biggest-ever US bank failures.

With help from the Federal Deposit Insurance Corporation (FDIC), Citi was to buy the banking operations of Wachovia and the US government would take a stake in Citigroup in exchange for guaranteeing Wachovia\’s distressed assets.

"At the time the Wachovia/Wells Fargo transaction was announced, Citi was finalizing the agreements required to consummate its FDIC-assisted open bank transaction with Wachovia," Citi said.

"Citi has been providing liquidity support to Wachovia since the day of the announcement."

The battle for Wachovia is part of the great redrawing of the US financial landscape as commercial and investment banks go bust or seek takeovers because of losses linked to the subprime housing market.

The planned acquisition by San Francisco-based Wells Fargo, which traces its roots to the Wild West and the Gold Rush of the 19th century, would give it the biggest network of branches in the United States.

If the deal were to go through, Wells Fargo would have 10,761 branches, 4,618 more than Bank of America Corp., which currently has the most branches.

It has offered 15.1 billion dollars in an all-stock deal that it stressed did not have any government involvement or taxpayer risk.

Citigroup offered to pay 2.16 billion dollars in stock to Wachovia and assume its mostly secure debt.

Citigroup would assume up to 42 billion dollars of losses from a pool of 312 billion dollars of loans held by Wachovia; the FDIC would absorb losses beyond that.

The takeover was orchestrated with the Federal Reserve and Treasury Secretary Henry Paulson in consultation with US President George W. Bush.

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