Citigroup Demands Wachovia and Wells Fargo Terminate Merger Deal

October 3, 2008 by · Leave a Comment
Filed under: Bank Failure 

I take issue with this. Why would Citigroup be so up in airs about this deal for Well Fargo to take over Wachovia? Well beside getting a fire sale price because of the banks distressed position, nothing. The problem with these latest deals is that the banks have been cherry picking these large commercial banks for their best assets and then leaving the holding company with all the bad assets that literally wipe out the shareholders and in some cases the bondholders as well. What we are forgetting is Wells Fargo is doing what atleast half of America has been calling for “A Free Market Solution“. This is not Wells just taking the bank deposits and run, they are taking the whole enchilada including the stuff some might not prefer. But now that we have these government sponsored or backed deals people would rather have intervention in the market then take part in the downside just as they took part in the upside. Here is what an analyst said that really hits home to what I am taking about with regards to the mentality now that the government is getting involved, “Citigroup loses an attractive, accretive deal, complete with government assistance. David Trone, an analyst with Fox- Pitt Kelton Cochran Caronia Waller in New York, wrote in a note today.

Bloomberg Article:

Citigroup Inc. demanded that Wells Fargo & Co. and Wachovia Corp. terminate a $15.1 billion takeover agreement announced today, saying it breached an exclusive deal the New York-based company reached earlier this week.

Citigroup, led by Chief Executive Officer Vikram Pandit, dropped as much as 15 percent in New York trading after San Francisco-based Wells Fargo said it would buy Wachovia in an all- stock transaction. Citigroup announced a $2.16 billion offer for parts of the company four days ago.

“Citi has substantial legal rights regarding Wachovia and this transaction,” the New York-based company said in a statement. “Wachovia’s agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia.”

The Citigroup deal, which included assistance from the Federal Deposit Insurance Corp., would have pushed the New York- based lender to third place among U.S. bank networks, behind Bank of America Corp. and JPMorgan Chase & Co. The proposal didn’t include Wachovia’s brokerage and mutual-fund businesses.

“Citigroup loses an attractive, accretive deal, complete with government assistance,” David Trone, an analyst with Fox- Pitt Kelton Cochran Caronia Waller in New York, wrote in a note today. “The deal was struck at the 11th hour and clearly had not been formally completed.”

Shares of Citigroup fell $2.50 to $20 in composite trading on the New York Stock Exchange at 10:24 a.m. The stock had gained 12 percent since the Wachovia deal was announced on Sept. 29.

FDIC Review

“The FDIC stands behind its previously announced agreement with Citigroup,” FDIC Chairman Sheila Bair said in a statement today. “The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest.”

U.S. bank regulators said they haven’t evaluated Wells Fargo’s deal.

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