Wachovia spurns Citigroup for Wells Fargo, Pandit vows a fight

October 4th, 2008 - 11:46 pm ICT by IANS  

New York, Oct 4 (IANS) Citigroup’s takeover of the Wachovia Corp early this week has come crashing down as Wells Fargo has agreed to pay $15.4 billion to buy the fourth largest banking chain in the US based on market value. The San Fransicso-based Wells Fargo’s offer Friday put paid to the federal government’s hastily arranged effort last weekend to get banking giant Citigroup to save Charlotte, North Carolina-based Wachovia from falling.

Citigroup had agreed to acquire Wachovia’s banking operations for $2.1 billion in stock and to assume another $53 billion in its debt.

While the deal with Wells Fargo, a diversified financial services company, is a turn of fortunes for Wachovia, Citigroup executives, immersed in discussions about integrating Wachovia, are incensed.

After learning of Wells Fargo’s strike, Citigroup chief executive Vikram Pandit roused his deputies in the middle of the night and began plotting a counterattack - including possibly challenging the new deal for Wachovia in the courts, Wall Street Journal (WSJ) reported Saturday.

Citigroup had not yet signed a definitive merger agreement with Wachovia and was relying instead on a two-page terms sheet. But the two companies did sign an “exclusivity agreement” prohibiting Wachovia from negotiating a deal with any other party.

Some US officials too appeared to be unhappy with the new development. The chair of the powerful Federal Deposit Insurance Corp (FDIC) Sheila Bair said her agency “stands behind its previously announced agreement with Citigroup”. But she did not make it clear whether the FDIC was rejecting the Wells Fargo transaction.

The Citigroup deal would be subject to a vote by Wachovia shareholders, who are unlikely to approve it in the wake of a higher offer. So, unless Citigroup is prepared to significantly sweeten its bid - a possibility its executives were considering Friday, according to the WSJ - it won’t be easy for it to walk away with Wachovia.

Considering Wells Fargo asks for no government assistance, its offer hints that there is still a market, albeit limited, for private takeovers of troubled US banks, one that does not place taxpayer dollars at risk, WSJ commented.

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