Posted on 10/05/2008 9:04:22 PM PDT by TigerLikesRooster
Wells Wins Rounds In Fight For Wachovia
Liz Moyer, 10.05.08, 11:24 PM ET
The battle between Citigroup and Wells Fargo for Wachovia continued late into Sunday, with federal court appearances, a tussle in New York State court and ongoing negotiations between all parties in a merger dispute that now involves the Federal Reserve.
Wachovia sued erstwhile suitor Citigroup in federal court in New York on Sunday, winning a hearing date for Tuesday in its attempt to back out of a deal in principle struck last Monday under which Citi, working with the FDIC, was to pay $2 billion to buy Wachovia's deposits and assets and back its holding company debt. Wachovia lost its motion Sunday for an emergency injunction and a temporary restraining order.
Late Sunday, a New York state appellate court ruled in Wachovia's favor, throwing out a lower court ruling issued Saturday that halted its talks with Wells Fargo over their alternative $15 billion merger, announced Friday, which would not involve the Federal Deposit Insurance Corp.
New York State Supreme Court Justice Charles Ramos had issued an order late Saturday that would have extended the period of an agreement giving Citigroup exclusive rights to seal a deal with Wachovia. However, an appeals court sided Sunday with Wachovia and Wells Fargo.
(Excerpt) Read more at forbes.com ...
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There’s only one reason why Citigroup would be fighting to get Wachovia, and that is because they see the “value” of Wachovia as something that is beneficial to them.
Well, so does Wells Fargo, and they are willing to *pay* with their *own money* a drastically higher price than Citigroup is going to pay — and *without* any “guarantees” by the Fed.
Citigroup simply wants to make a killing at the expense of the American taxpayer and use the Fed to “guarantee” its “killling”.
There is a lot more value to Wachovia than a “fire sale” would indicate — and indeed a fire sale that was *forced* on Wachovia, by the Fed, in the first place.
They had better let the Wells Fargo deal go through since it’s totally with their own money and own funds and at a *lot higher price* than what Citigroup wants to do. (In fact, once could say that Citigroup wants to *steal it* — using the Fed for “cover”).
There is only one thing that Citigroup wants - and they need it fast: the deposit accounts of Wachovia.
If Citigroup does not get these then look for them to cease to exist as an ongoing entity.
The Nikkei is taking a pounding right now as they enter the end of their trading day.
Grewat the deal will go through without costing the taxpayer a large fortune!
I’m no fan of Citicorp but I think they’re going to either win Wachovia outright or Wells Fargo is going to have to write them a check for billions to go away.
The FDIC wanted a deal saving Wachovia done by market open last Monday. Wells Fargo was negotiating a deal last weekend walked away at the last minute, Citi and Wachovia worked out a deal by the deadline. If there was no deal by the market’s open, Wachovia probably would have failed and gone into FDIC receivership. So the only reason Wells Fargo can in with a new offer now is because Citi kept Wachovia alive (and Citi’s stock has dropped as a consequence of agreeing to the buyout).
Another thing is Citi was paying $2 billion to Wachovia, but it also gave the FDIC $12 billion in stock warrants. The Wells Fargo deal pays $15 billion direct to Wachovia, thus cutting Citi out of its deal and the taxpayers out of their $12 billion in warrants. Beyond that, from how Wells Fargo structure their deal, they’re using a tax loophole worth at least $29 billion. In other words, the taxpayers stand to gain at least $41 billion more from the City deal than the Wells Fargo one.
The FDIC is on the hook (under the Citi deal) for losses above $42 billion, but the converse is Citi has promised to cover the first $42 billion in losses. In contrast Wells Fargo is free to hit the $700 billion bailout fund immediately.
Apparently the FDIC did Wachovia a special favor :
http://online.wsj.com/article/SB122325530665506527.html?mod=yahoo_hs&ru=yahoo
(snip)
“The provision was inserted into the rescue legislation last week, at the behest of the FDIC, according to people familiar with the matter. The aim was to reduce the government’s exposure to Wachovia losses under the original Citigroup deal. Lawyers said the clause appears to defang the exclusivity pact between Wachovia and Citigroup.
(snip)
“Citigroup officials were caught off-guard by the provision, with senior officials not being aware of its existence until Friday afternoon—after President George W. Bush had already signed the bill into law. Citigroup executives argued that the provision also could invalidate Wachovia’s subsequent deal with Wells Fargo—an assertion that those banks dismissed.”
IOW, did Wachovia’s (i.e. Robert K. Steel’s) friends in the Treasury do him a special favor?
Is this going to pass muster?
If Citicorp fails, then let it fail on its own and apart from Wachovia. It appears that Citicorp was “using” Wachovia to gain some more time before they failed. At least with Wells Fargo, it’s in much better shape than Citicorp and Wells Fargo will leave Wachovia all together and not break it up.
It’s this kind of “fire sale” type of mentality that is doing in the financial system across the board and which is threatening to bring the whole thing crashing down. That’s why we need a massive amount for “bail-out” and to restore confidence and get the system working smoothly again. Then, after that is accomplished (i.e., “stabilize the patient”) you can work on ways to make things better in the long-term (and overall).
Wells Fargo could easily pay for any “out of pocket” expenses incurred by any of the other parties involved — but it doesn’t need to pay for the “blood-sucking” that Citicorp was hoping to do with Wachovia...
Citigroup... Is it not backed (majority of shares) by Arab money?
Wells all the way to Fargo if you ask me.
Damned if I see a compelling reason to forbid the private sector to arrange this deal, rather than the taxpayer being involved.
What could that first NY judge have been thinking?
silly me.
fyi - post #10 might be of interest.
Can Congress retroactively void a contract that was legal and enforceable under US law at the time of signing?
thanks Tiger for all the pings....interesting scenario coming to a head. Looking at crude futures now.
October 06, 2008
Wachovia Issues Statement Regarding Litigation Standstill
Wachovia, Citigroup and Wells Fargo, in consultation with the Federal Reserve, announce the following agreement.
Wachovia, Citigroup, and Wells Fargo have agreed to:
1) a standstill of all formal litigation activity effective immediately;
2) cease any formal discovery activities, and
3) cooperate in good faith to agree among themselves to secure orders where necessary in all applicable cases in all jurisdictions tolling any schedules for the filing of litigation papers or court appearances or any other formal litigation deadlines, with the goal of preserving the status quo during the litigation standstill period.
This standstill agreement will terminate at noon on Wednesday, Oct. 8, 2008, unless otherwise extended.
Like a couple of jackals fighting over the carcass. Things are getting really ugly.
Don’t the shareholders have a say in these deals?
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