Wachovia Corporation (WB) is currently at the centre of a fierce legal fight brewing between Wells Fargo (WFC) and Citigroup (C) over the argument of who has the right to buy the beleaguered bank.
In a deal arranged by the FDIC on Sept.29, Citi agreed to acquire Wachovia’s banking operations for $2.2 billion, or $1 a share. Four days later, Citigroup’s takeover plan of Wachovia was wrecked when San Francisco-based Wells Fargo Co. agreed to pay more than $15 billion, or seven times as much for the entire Charlotte, North Carolina-based company.
The move left Citigroup management fuming since the co. sees the acquisition of the nation’s fourth-largest bank in market value as recently as last year, as the only way to emerge from the economic crisis in a stronger position among a smaller number of financial giants.
Though fully aware of the fact the deal will come at a cost for Citi, since the New York based firm will have to absorb up to $42 billion of losses from Wachovia’s $312 billion loan portfolio, Citi’s new acquisition, if made definitive, will greatly expand co’s retail franchise giving it a total of more than 4,300 U.S. branches and $600 billion in deposits — and most importantly, will secure Citi’s place among the U.S. banking industry’s Big Three, along with Bank of America (BAC) and JPMorgan (JPM).
Citi after accusing Wells Fargo of trying to cut off its earlier takeover offer of Wachovia’s banking operations, announced late Saturday that it was granted emergency injunctive relief extending the Exclusivity Agreement between itself and Wachovia until further order of the court.
Justice Charles Ramos of the Supreme Court of the State of New York – issued the order blocking the Wells Fargo deal over the objection of Wachovia.
As indicated by Citi in court filings, the Exclusivity Agreement, while in effect, unconditionally bars Wachovia from negotiating or entering into a merger/acquisition agreement with any party other than Citi.
Wachovia spokeswoman Christy Phillips-Brown said in a statement the company believes its agreement with Wells Fargo is “proper, valid” and “in the best interest of shareholders, employees and the American taxpayers”. She also added that “Citigroup is always free to make a superior offer to Wachovia”.
Under the Judicial Order, Citi and Wachovia must appear before Judge Ramos on Friday, October 10, 2008. The legal fight pits two of the largest remaining financial institutions against each other.
Update: AP is now reporting Wachovia responded Sunday to a New York judge’s order temporarily blocking the sale of the bank to Wells Fargo with a lawsuit of its own, asking U.S. District Judge John Koeltl to allow the deal to go through. Koetl now has vacated Ramos’ order, but scheduled another hearing for Tuesday so Citigroup could respond.