Citigroup Withdraws From Wells Fargo Negotiations

9 10 2008

Citigroup said late Thursday that it will not try to block a merger between Wachovia and Wells Fargo, but that it would continue to seek $60 billion in legal damages after the Charlotte-based bank spurned a $2.2 billion deal proffered by Citigroup at the government’s behest.

In a lawsuit filed in New York state court on Monday — but put on hold because of the now recently ended discussions — Citigroup said that it was seeking at least $60 billion in compensatory and punitive damages.

The decision by Citigroup to withdraw from discussions with Wells Fargo marks the resumption of a court battle between the two big banks, one that began in a flurry of hurried motions late last week. Last week, Citigroup agreed to buy Wachovia’s banking operations for about $2.2 billion, in an eleventh-hour deal brokered by the federal government.


Wells Fargo Interferes

4 10 2008

The bold gambit that could reorder American banking began with the chirp of a cellphone in Charlotte, N.C.

It was just after 9 p.m. on Thursday, and Robert K. Steel, the chief executive of the Wachovia Corporation, listened to startling news on his phone as he stepped off a plane from New York: Wells Fargo & Company was plotting to wrest his stricken bank from Citigroup.

Only four days earlier, assisted by federal regulators, Mr. Steel had agreed to sell Wachovia to Citigroup for a fire-sale $1 a share. Wells Fargo had walked away, and Richard M. Kovacevich, its chairman, had called to wish Mr. Steel good luck.

But now Mr. Kovacevich was on the line with a far sweeter deal, one worth about $15 billion— seven times what Citigroup was offering.

The call set in motion another game of brinkmanship in a year of extraordinary Wall Street showdowns. At stake is the control of one of the nation’s largest retail banking businesses— a prize that will transform the winner into one of the few giants to emerge from the wreckage of the industry. For Wells Fargo, which is based in San Francisco, Wachovia would expand its reach across the nation. Citigroup, which is based in New York, wants the bank for its large retail operations.

The battle has also drawn in federal regulators, who had pushed the teetering Wachovia into the arms of Citigroup but are now seeking to limit taxpayer exposure. The reversal might make it more difficult for the government to broker future rescues. Citigroup is weighing a lawsuit that would claim a breach of contract.

In the wings is Warren E. Buffett, the largest shareholder of Wells Fargo, who has emerged as the go-to financier for several prominent companies that have come under siege during the credit crisis.

After two hours of debate, the board concluded that Wells Fargo’s offer was too good to pass up. Wells Fargo was offering to buy all of Wachovia, whereas Citigroup had proposed buying only part of it. Also, Wells, unlike Citigroup, was not seeking government support. And then there was the money.

The board voted in favor of the offer, and, at approximately 2:15 a.m., Mr. Steel placed an awkward call to Mr. Pandit at Citigroup. The deal, he told him, was off.

Fifteen minutes later, Mr. Pandit alerted his lawyers and top lieutenants and summoned them to prepare for battle. They met at the law offices of Davis Polk & Wardwell. Groggy, one Citigroup executive forgot his corporate ID card.

In the early hours of Friday morning, Wachovia executives learned that Sheila C. Bair, the head of the Federal Deposit Insurance Corporation, which had pressed for the Citigroup deal, would not stand in the way of the new agreement with Wells Fargo, as it would involve no risk to taxpayers.

“Neither Chairman Bair nor any person at the F.D.I.C. in any way initiated or solicited this bid from Wells Fargo,” an F.D.I.C. spokesman said on Friday. “When asked for our views, we said that we would not object” because the agency does not have the authority.

Other federal regulators said that they would not block Well Fargo’s offer while they reviewed the proposal.

Wells Fargo to buy Wachovia

3 10 2008

Wells Fargo said early Friday that it would merge with Wachovia — including the troubled Charlotte bank’s banking operations — in a $15.1 billion all-stock merger.

The announcement comes only four days after Citigroup agreed to buy Wachovia’s retail banking operations for about $1 a share, at the government’s behest and with a guarantee to absorb most of the losses on Wachovia’s massive loan portfolio. That deal would have left Wachovia with only its securities and retail brokerage.

Wells Fargo, based in San Francisco and considered one of the strongest banks amid the market turmoil, said that the deal requires no assistance from the Federal Deposit Insurance Corporation or any other government agency. It will raise up to $20 billion by issuing new shares, primarily common stock.

Citigroup to Acquire Wachovia

29 09 2008

Citigroup will acquire the banking operations of the Wachovia Corporation, the Federal Deposit Insurance Corporation said Monday morning, the latest bank to fall victim to the distressed mortgage market.

Citigroup will pay $1 a share, or about $2.2 billion, according to people briefed on the deal.

The F.D.I.C. said that the agency would absorb losses from Wachovia above $42 billion and that it would receive $12 billion in preferred stock and warrants from Citigroup in return for assuming that risk.

“Wachovia did not fail,” the F.D.I.C. said, “rather it is to be acquired by Citigroup Inc. on an open-bank basis with assistance from the F.D.I.C.”

Under the deal, Citigroup will acquire most of Wachovia’s assets and liabilities, including $400 billion in deposits and will assume senior and subordinated debt of Wachovia, the F.D.I.C. said. Wachovia Corporation will continue to own the retail brokerage firm AG Edwards and the money management arm Evergreen.

“There will be no interruption in services and bank customers should expect business as usual,” the F.D.I.C. chairman, Sheila C. Bair, said.

The move was necessary, the F.D.I.C. said, to avoid serious fallout on economic conditions and financial stability.

“This morning’s decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury,” Ms. Bair said. “This action was necessary to maintain confidence in the banking industry given current financial market conditions.”

The sale would further concentrate Americans’ bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Citigroup. Together, those three would be so large that they would dominate the industry, with unrivaled power to set prices for their loans and services. Given their size and reach, the institutions would probably come under greater scrutiny from federal regulators. Some small and midsize banks, already under pressure, might have little choice but to seek suitors.

Wachovia has been hurt badly by its 2006 purchase of Golden West Financial, a California lender specializing in so-called pay-option mortgages. The bank also faced mounting losses on loans made to home builders and commercial real estate developers, and its acquisition of A. G. Edwards, a retail brokerage firm, turned out to be problematic. In June, Wachovia’s board ousted G. Kennedy Thompson, the bank’s longtime chief executive.

The talks with Wachovia intensified on Sunday after a weekend of negotiations in Washington over a $700 billion rescue for the banking industry. Only days earlier, federal regulators seized and sold the nation’s largest savings and loan, Washington Mutual, in one of a series of important deals that have reshaped the financial landscape.

As the credit crisis has deepened, a consolidation in the financial industry that analysts have predicted for years seems to be playing out in a matter of weeks.

The impact will be felt on Main Street, Wall Street and in Washington. While the tie-ups may restore confidence in the industry, they also could leave a handful of big lenders to determine fees and interest rates on everything from home mortgages to credit cards to checking accounts. Some small and midsize banks may be unable to compete with these behemoths.

Citigroup Stops Color Copying

26 08 2008

As Citigroup seeks to right its course, it has tried many fixes – many involving the pruning or restructuring of its organizational charts. But the banking giant apparently isn’t satisfied.

Now it’s asking its bankers and traders to stop using color copying and to start printing internal presentations on both sides of the page.

That’s according to a memorandum issued earlier this month by John Havens, the head of Citi’s institutional clients group, in which he urges employees to be much more frugal in their expenses. (Read the full memo after the jump.)

As Citi tries to deal with tens of billions of dollars in losses over the past year, it has resorted to a variety of fixes, including massive waves of layoffs and write-downs. Now the firm appears to be boring down on the workaday costs of running a giant financial-services firm, the last refuge of many cash-strapped organizations.