Citibank, Wells Fargo May Carve Up Wachovia, Feast On Its Bones

Bloomberg is reporting that Wells Fargo and Citibank may split Wachovia. Neither bank would get assistance from the government and taxpayers under the deal being discussed now.

“There is a point at which the FDIC will take Wachovia over if they are concerned about the stability of the bank,” said Christopher Whalen, managing director of Institutional Risk Analytics, an independent research firm in Torrance, California. “But as long as Citi and Wells will extend support to Wachovia, they have time.”

To end a legal skirmish, Citigroup may agree to take Wachovia’s branches in the northeast and mid-Atlantic regions, while Wells Fargo would get the Southeast and California branches, as well as Wachovia’s asset-management and brokerage units, the Wall Street Journal reported, citing people familiar with the situation.

Bank officials and FDIC spokesman David Barr declined to comment. Cable network CNBC reported that Citigroup was bidding for all of Wachovia. Citigroup spokeswoman Shannon Bell didn’t immediately return a call seeking comment.

A ruling over the weekend that said Citibank had the exclusive right to negotiate a takeover with Wachovia until Oct. 10 was overturned yesterday.

Wachovia is in trouble after acquiring a lender that was heavily invested in “pay-option” mortgages, a type of risky loan often given to people with good credit, but who are not required to provide documentation of their finances. “Pay-option” loans can actually grow in size because borrowers are allowed to pay less than the accruing interest.

Citigroup, Wells Fight May End by Splitting Wachovia (Update4)[Bloomberg]
(Photo: So Cal Metro )

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  1. Geblah187 says:

    So they’re going the way of king Solomon and cutting Wachovia in half?

    Looks like i’ll end up on the Wells Fargo half, while my retired parents will end up in the Citibank half.

    Hopefully there will be visitation rights.

  2. TVarmy says:

    Frankly, I’m glad if I get Citibank. I have never seen a Wells Fargo in my state, and I really wish I had more ATMs that work with my Wachovia account. If they convert my debit card to work in Citi ATMs fairly soon, I’ll be happy. Granted, PNC and Bank of America are most common, but beggars can’t be choosers.

  3. chiieddy says:

    I still think whatever Citibank says, Wachovia has the fiduciary responsibility to do what’s best for their shareholders, which was the Wells deal.

    • howie_in_az says:

      @chiieddy: Not to mention WF didn’t rely on taxpayer money to fund their deal; Citi was only paying $2.some-odd billion and the FDIC was ponying up the rest.

    • stevejust says:

      @chiieddy: Umm… that fiduciary duty would have been not to collapse the entire financial system with pay option loans and other asinine inventions.

  4. OletheaEurystheus says:

    Unless I am mistaken the whole POINT of Wells Fargo buying Wachovia was the mid atlantic and nor’eastern reagons. If thats Citi’s stipulation that they only get the territory they already own Wells is likely going to say get bent.

    • chas7926 says:

      Not necessarily. WF doesnt have any branches east of Indiana. While the North East was probably the market they wanted, the South East would still be a huge area for them to move into, especially given the Wachovia penetration in this market.

      @Map

  5. Josh_G says:

    The feds just need to weight in and make a decision here, leaving it up to the court system could take a long while.

    • mugsywwiii says:

      @Josh_G:
      Yeah, forget the legal process, let’s just have the executive branch dictate everything.

      Seriously?

      • Josh_G says:

        @mugsywwiii:

        That’s pretty much what they have been doing so far bailing out these banks and arranging these sales to other banks for virtually free (while assuming the bad debt themselves).

        The point of the feds arranging these sales is to prevent them from having to seize them later, stabilizing the market, keeping the bank from failing, protecting the banks assets, etc.

        So considering all of this is in the name of stabilizing the market (or whatever you want to call it), then the feds need to pick the buyer that offers the highest chance of doing just that.

        Considering Citibank is relying heavily on governmental loans and Wells Fargo isn’t, it seems pretty obvious to me what would be better for Wachovia’s shareholders and asset holders, as well as for taxpayers and the general market.

  6. azntg says:

    I’d bet what will actually happen at the very end will be a total surprise for all of us.

    I’m just making this one up, but maybe we might see something as crazy as:

    “News Flash: Citigroup, Wells Fargo agrees to acquire Wachovia jointly. Three banks agree to merge into one company shortly after. Naming lawsuit pending.”