Not So Fast: Judge Blocks Wachovia Sale To Wells Fargo, Citibank Rejoices

Tsk tsk, Wells Fargo. You should’ve known that stealing Citibank’s unspoiled bride at the alter was going to draw a bitter legal challenge. Late last night, Citibank’s team of repo-lawyers claimed a partial victory, announcing that a New York judge has agreed to block Wachovia’s sale. Citibank is also demanding $60 billion from Wells Fargo for interfering with the deal.

UPDATE: Now the block has been blocked! Madness continues apace.

Citibank previously teamed up with the FDIC to pick off Wachovia’s banking operation for $2.2 billion. Four days after the deal was announced, Wells Fargo loaded up the stagecoach, buying Wachovia as a whole for $15 billion. The FDIC shrugged its shoulders, glad not to have pay $42 billion to secure against losses, and let Wells Fargo proceed with the takeover.

Citigroup raised the stakes in the merger battle on Saturday afternoon, asking Justice Charles E. Ramos of New York State Supreme Court to issue an emergency order blocking the deal between Wachovia and Wells Fargo.

Representatives from the banks met at Justice Ramos’s home in Cornwall, Conn., late Saturday afternoon for more than three hours of oral arguments, according to people briefed on the situation.

In the unusual weekend session, Citigroup presented Justice Ramos with a 16-page complaint naming both Wells Fargo and Wachovia, and their boards, as defendants. But it has not yet filed the suit formally because the courts were closed.

Late Saturday, after several hours of intense legal jockeying, Justice Ramos issued an injunction effectively blocking the Wells Fargo deal, pending a hearing scheduled for Friday.

Wachovia hasn’t seen the judge’s order yet, but that didn’t stop them from debasing Citibank’s lawsuit as nothing more than a “pointless legal maneuver.”

Wachovia customers can sit back and feel loved. Your accounts are safe, and for the moment, your banking experience will remain the same as it ever was.

Citigroup Says Judge Suspends Wachovia Deal [The New York Times]
Citi: Wells Fargo blocked from buying Wachovia [AP]
PREVIOUSLY: Giddyup! Wells Fargo Rides In And Steals Wachovia From Citibank!
(Photo: So Cal Metro)

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  1. YarkonaFergasun says:

    This would be funny if it weren’t so serious. Now, the big banks are fighting each other in a break neck race to consolidate which is being done for business survival rather than business gain. Sadly, the bailout will not help them much. They are hurting and when they hurt, we all suffer. Everyone should start looking for ways to protect their money. This basically comes down to either taking your money out of the market and cutting discretionary spending or diversifying and investing some overseas. I personally use offshore bank accounts and they have helped me with diversification and asset protection. If you want to read more on why offshore investing is smarter, feel free to visit my website.

    Best,
    Frank Miller
    http://www.theoffshorebankaccount.com

  2. thebluepill says:

    Citi might be cutting their own throats here with this.. They may wind up killing Wachovia in the process, making this more of a “scortched earth” deal, where if Citi cant have it, then no one will.

  3. Open24Hours says:

    Citibank is also demanding $60 billion from Wells Fargo for interfering with the deal.

    60 BILLION DOLLARS!?!?

    Seriously?

    • raskolnik says:

      @Open24Hours: Meh, it’s a pretty typical legal strategy, just on a larger scale. I can’t imagine anyone at Citi actually expects to get that much, but you can’t get more than you ask for, so it’s good to aim high. Plus it gives Wells Fargo that much more incentive to settle, which is likely what’ll happen.

    • jamar0303 says:

      @Open24Hours: Oh yeah, bring down another bank, why don’t you? Ahhh, Citi- this and their near-stratospheric minimum balance requirement is why I don’t have anything with them.

  4. Teradoc says:

    I just don’t get it, granted I am completely uneducated in the higher standards of the sense of economics & corporate law, but why would this judge allow this injunction?

    I mean on one hand you have a Citi buying Wachovia for pittance of a price & having to have the FDIC/government shoulder one more load
    On the other hand you have Wells Fargo willing to buy it all up and not have to bother with government support. Say what you will about WF, but I mean looking at just the price tag for the government, it seems a hellva lot better to let WF just buy it up and that is one less bank the govt has to muck about with for the time.

    • raskolnik says:

      @Teradoc: It definitely would be cheaper for the government, but that’s not something the judge is supposed to consider. The impression I get is that this is a temporary injunction until Citi and WF can fight it out. If the judge let the deal go through, at best it would be messy to undo things should Citi previal.

  5. sir_eccles says:

    I know which deal the Wachovia shareholders will vote in favor of, which makes all of Citi’s crying moot.

    • raskolnik says:

      @sir_eccles: Depends. If there was already some kind of contract between Wachovia and Citi, then it would be stupid for Wachovia’s shareholders to vote to violate it, considering Citi could then sue them to smithereens. That said, it seems unlikely that’d be the case; I’d be surprised that Wells Fargo is dumb enough to buy out an ailing bank and take on further liabilities in terms of a contract violation.

  6. amnyny says:

    It’s not that easy of a decision. The only reason that Wachovia was able to stay in business this past week was because of Citibank giving them the liquidity they needed. If they hadn’t started the merger process with Citibank they would have already been out of business.

    The fundamental issue in my opinion is that if Citibank doesn’t get the deal then in the future private banks will become a lot less likely to help the government by taking over a failing bank.

    • cortana says:

      @amnyny: I don’t think that will be the Case. Citi’s not in all that much better shape than Wachovia in the first place. The only reason they jumped at the deal was because it was INCREDIBLY UNDERVALUED. They stood to make 96 billion almost instantly, selling off wachovia’s loan portfolio to the government post-bailout.

  7. chartrule says:

    can you just feel the corporate greed

  8. parrotuya says:

    Hey, I saw her first. So, take a hike, bud!

  9. Dasher78 says:

    RE: Citi demanding $60 billion from Wells Fargo – this number is most likely based on the stock loss they took when Wells announced their competing takeover of Wachovia. Share prices fell by $4+, basically 20-25% of the stock’s value prior to the Wells announcement. Citi is definitely looking to recoup (and maybe a pound of flesh to boot).

  10. doctor_cos wants you to remain calm says:

    Who wants my money? Who wants it more?

    When do I get my say? I thought it was MY money.

  11. MunkyBoi says:

    Wow. Just wow. Petty, petty, petty. Citi only wanted Wachovia’s operations dept – they were going to leave the rest of the company to dry up in the scorching economic climate. I think Wells Fargo would have significantly improved the economic crisis that’s going on by taking the entire company – an entity almost their own size, but with a significant number of troubled customers. This speaks volumes to me about Citi – do they WANT the banking system to fail? Is there a secret golden monkey that Wachovia is holding in their operations division? Did they just want all that free money from the bailout? Wells Fargo is stable and sturdy enough to take in Wachovia’s ENTIRE failing operation, and make it healthy again – it’s a great deal for Wachovia’s customers, and as I see it, a welcomed positive step towards helping resolve the banking crisis.

    Oh – AND seeking punitive payout? Just shameful. I’ll be closing my Citi card this week.

    • OletheaEurystheus says:

      @MunkyBoi: Did they just want all that free money from the bailout?

      DING DING DING DING DING… and this is EXACTLY what everyone who actually knew something about the economy and not the talking heads of the government and banking industry said. The bailout was going to do NOTHING but create a situation where banks where going to jockey for who gets more money while the public continues to be of no concern.

    • mugsywwiii says:

      @MunkyBoi:
      Citi wasn’t buying Wachovia’s “operations department,” they were buying Wachovia’s banking operations, which comprise many departments.

  12. woot says:

    Standard practice in this type of negotiation is for the parties to sign a “no-shop” agreement, where the target promises not to enter into any discussions with any other potential acquirer during the time period that the final details are worked out. This avoids the whole thing turning into an auction.

    Wachovia runs a serious risk that a judge will find they breached their agreement with Citi, although there are arguments to be made on both sides. I don’t think this issue will go away until a court of law weighs in.

  13. Pylon83 says:

    I’m amazed at how some people believe that a Judge/Court of Law should make decisions based on what is best for the Government or the tax payer. The reason this is in/going to court is because Citi believes they have a binding contract with Wachovia. The Judge over the weekend entered an injunction likely based on his finding that Citi has a reasonable chance of winning on the merits, and that irreparable harm will occur if the injunction isn’t entered. The substantive issue has nothing to do with the bailout or saving the government any money. It simply has to do with breach of contract, and since no one on here has any idea what the contract they have says, it’s probably a good idea not to jump to conclusions about Citi’s actions.

    • OletheaEurystheus says:

      @Pylon83: I’m amazed at how some people believe that a Judge/Court of Law should make decisions based on what is best for the Government or the tax payer.

      The courts lost their say once billions of taxpayer dollars worth decades of debt came on the line IMHO. Its MY money involved too, not just wachovia, not just citis, and not just wells fargos. Where is MY say on who gets to honor their contracts with who?

      Oh wait I lost that when 246 politicians decided they knew better that the American people.

      This is why the bailout was a bad idea, we are going to get screwed within a week of it being voted already… Say what you want but the only loser in this entire pissing match will be every American posting here.

      • Pylon83 says:

        @OletheaEurystheus:
        The courts have absolutely nothing to do with the bailout. If you want to have a say in whose contract gets honored, go to law school get hired by the law firm that represents these companies. Or better yet, get appointed to a judgeship. Until then, leave the law to the lawyers and judges.

  14. Instigator says:

    So Wachovia wants to give Citi the ring back and marry up with Wells Fargo instead. By turning its business into a soap opera, Wachovia shows nothing but contempt for its everyday account holders, who by now are doubtlessly planning to open new accounts at banks that have less self-inflicted drama going on. Ultimately, all that keeps any bank in business is its reputation and the confidence of its retail customers. Wachovia has pretty much screwed the pooch in this respect, and shouldn’t be surprised to see a big run on it come Monday.

    • mac-phisto says:

      @Instigator: have you read anything about the mergers? citi plans on carving up wachovia whereas wells fargo would keep it intact. for example, previous commenters on this site have pointed to the inconvenience of brokerage services being severed.

      i think they were looking out for their account holders & investors when approached by wells. it allows them to offload the entire institution & provide shareholders with a greater return on their investment than they were initially offered.

      • Instigator says:

        @mac-phisto: Yes, I have been reading about the mergers. My point is that this is largely a matter of perception, and the perception that customers have now is that Wachovia is highly unstable. If people don’t feel comfortable about the stability of their bank, Wachovia is in bigger trouble than before. I have a feeling that many customers aren’t going to wait to see how this all shakes out.

  15. locke004 says:

    Federal regulators and Citibank are in bed with one another.

    1. Federal regulators agree to clear $42 billion in Wachovia’s debt.
    2. Citibank is in closed deals to buy parts of Wachovia for only $2.2 billion ($1 per share).
    3. Wells Fargo steps in citing that Wachovia is really worth $15 in its entirety and offers Wachovia for what its assets are really worth.
    4. Citibank is furious, gets judge to block Wells Fargo deal, and sues for $60 billion.

    Citibank’s greed is crystal clear now. They’ll go scorched earth to buy Wachovia at a fraction of what it’s really worth, or let Wells Fargo have them but get a free cut of the pie from one of the few honest banks that didn’t practice predatory loans/mortgages during the housing crisis. Ultimately, honesty loses, big money and government insiders will profit somehow when all the scorching is done.

  16. Sugarless says:

    Wachovia again shows that it could care less about its customers and Wellsfargo is ready to step in and make a side deal.
    I hope Citi wins.

    • jamar0303 says:

      @CreoleSugar: The problem here is that Citi is looking to only take on part of Wachovia and dump the rest on the government while Wells Fargo wants to take everything. In light of that it would be insane to put Citi’s deal ahead of WF’s- after throwing $700B away like that the last thing the government needs is to spend more money (which it would do having to buy the half of Wachovia that Citi doesn’t want).

      • mugsywwiii says:

        @jamar0303:
        The government is/was not going to buy the remainder of Wachovia. It would continue to exist as Wachovia, sans banking operations.

        • jamar0303 says:

          @mugsywwiii: The problem is, why doesn’t Citi want to take on the whole thing, then? If it’s because that part of Wachovia is unprofitable then it’ll teeter on the edge of collapse and… you know the drill. On the other hand, Wells Fargo wants to take everything; it’s paying for everything and life continues as best as it can with the government throwing $700B+pork at banks and things.

        • jamar0303 says:

          @mugsywwiii: And looks like I was right. Citi wasn’t planning on taking the deposits; leaving those to the FDIC to handle is what I call “dumping on the government” and it’s the last thing we need now.

  17. johnnya2 says:

    This is the same as selling the company twice, but they were not authorized to sell it the second time. Citi made the deal and BECAUSE of that deal Wells Fargo found out the company was now worth more. If Wells was not smart enough or competent enough to make the deal PRIOR to Citi, then they lose. Citi made their offer in good-faith and made decisions based on that good faith.

    • Islandkiwi says:

      @johnnya2:

      Yes, but were other financial institutions able to make such a deal? To me this smells like Citi and the government are a little too buddy-buddy, and therefore perhaps the decision that was reached was not the best deal for the financial marketplace.

      It’s tricky, because you can’t announce a bank is in dire straits. People will pull their money and that bank folds sooner than later. But if the federal government is going to get involved, then these companies will need to go to the highest bidder…and you’d have to favor the bid that didn’t involve government entanglement.

      • mac-phisto says:

        @Islandkiwi: exactly. i was surprised to read FDIC’s remarks on the issue – it’s strange that a regulator would support a measure that costs money & destroys the rights of shareholders over a competing bid that doesn’t require gov’t investment.

        perhaps there is more going on here than we are led to believe…

  18. WachoviaEmployee says:

    Stealing the company for $2.2 billion (which was only to go to the Wachovia Corporation, not to shareholders) is not “good faith”. Citi wanted WB on the cheap and now Wells is offering more than Citi and Citi doesn’t want to bid a fair price. End of story.

    Second, look at the back story. Over the weekend of the 27th/28th, both Citi and Wells were looking at WB’s books so as to make a bid. Wells wanted 2 weeks to formulate a plan but the FDIC wouldn’t have it so Citi made a firesale offer and the FDIC jumped, while Wells walked away. The article states, “Citigroup contends that the deal with Wells Fargo violates an agreement that prohibited Wachovia from having any sale or merger discussions with anyone other than Citigroup until Oct. 6.” You now have your answer: Wells made an offer AFTER they had walked away from the deal, meaning WB did NOT initiate any sale or merger discussions after agreeing to Citi’s purchase.

    A “pointless legal maneuver” is correct.

  19. Kaisum says:

    Simple solution:

    Shareholders deny sale to Citi.
    Wachovia is up for sale again.
    Just hurry up and decide who’s going to hold my money, bitches.

  20. u1itn0w2day says:

    These corporations were supposedly too big to fail and yet the government/FDIC among others is encouraging these bailouts or buyout creating defacto monopolies.

    What’s to say these ” new ” companies won’t to be too big to fail AGAIN?

    • mugsywwiii says:

      @u1itn0w2day:
      How is there a “defacto” [sic] monopoly when the top 3 banks only control 1/3 of the country’s deposits? Do you know what a monopoly is?

      (1/3 assuming Citigroup ends up owning Wachovia)

      • u1itn0w2day says:

        @mugsywwiii: I’ve seen certain areas of the country where certain banks dominate,there is little or no local competition.

        And how is making big corporations even bigger not pushing them closer to being a monopoly.The idea is to prevent a monoply from occuring,not enabling them.

  21. yikz says:

    Citibank is chock full of crap. $2.2 billion? They expected no one else to jump in and up the ante? How on earth do they expect to gain $60 billion in damages from Wells Fargo? I’d LOVE to see that court case. I’d like to see Joe Taxpayer have some representation on this one… There’s no way I want some government agency footing a $42 billion bill while Citibank walks away with a deal at $2.2 billion. I’d rather see Wells Fargo pay a legitimate price and have the government save the money for something else.

    • mugsywwiii says:

      @yikz:
      I love that people keep commenting about things they don’t even understand. The $42 billion was Citigroup’s share of the losses from bad loans. The government would be responsible for anything ABOVE $42 billion. The actual amount, if anything, is unknown.

  22. PollyHaerk says:

    I am actually a happy Wachovia customer. I fled to SOUTHTRUST after having a horrendous experience with the last bank I was a member of after it merged with a larger bank, and was pleasantly surprised when Wachovia bought Southtrust and it was a painless experience.
    I’ve had a CITI credit card… I work for a large regional bank who has a servicing contract with CITI, and through this, i’ve stayed with Wachovia. But let me tell you something: I was planning my departure when I heard Citi took them.

    Whats truly amazing to me is that CITI ever believed they could retain Wachovia customers… they are big and do an incredibly poor job of outsourcing the dirty work. they have zero standards when it comes to customer service. Citi ought to be saying to the public right now “WE DIDN’T COST YOU $42 BILLION IN TAX DOLLARS, YAY!” rather than “if we can’t have it, no one can”…. They’re unbelievable…

  23. sonneillon says:

    Since Wells Fargo is flush with cash as opposed to paying 60 billion to citibank. They should just go hostile takeover on citibank and use that 60 billion to buy out their pathetic stock now that it has dropped in value and replace their leadership and legal team.

  24. RStewie says:

    I’m surprised anyone is still banking with them after this drama.

    I’d have pulled my money at the first sign of trouble. Credit Unions FTW!

    • Rectilinear Propagation says:

      I’d have pulled my money at the first sign of trouble.
      @RStewie: A lot of them did, there just wasn’t press coverage of it at the time.

  25. chauncy that billups says:

    Should wachovia customers continue to bank as usual? I’m pretty sure at this point I’m going to pull out of wachovia and go elsewhere; this is getting to be too much.

    • mugsywwiii says:

      @bilups:
      Why would you take your money out? You have nothing to worry about. If you’re unhappy with the service you’re receiving, take it out. Don’t take it out because you heard on the news that two companies are fighting over Wachovia. Your account is insured. None of this will affect you.

  26. ionerox says:

    Hey Carey- you should update this or post an amendment… an appelate court overturned this decision because the judge in question issued the injunction from his home in CT- which is against NY state law. NYT’s Deal Book has the best coverage of the legal wranglings [dealbook.blogs.nytimes.com]