Citigroup Inc, hobbled by US$61 billion of subprime-related losses, now faces its biggest takeover battle in a fight with Wells Fargo & Co for control of Wachovia Corp.
Citigroup fell as much as 21 percent on Friday in New York trading after Wells Fargo, the biggest US bank on the West Coast, agreed to acquire all of Charlotte, North Carolina-based Wachovia for US$15.1 billion. The bid trumped Citigroup’s government-backed offer of US$2.16 billion for Wachovia’s banking operations.
“The taxpayer doesn’t pay a penny” for the Wells Fargo deal, Wells chairman Richard Kovacevich, 64, said on Friday in an interview.
His company’s bid is superior to Citigroup’s also because it’s a higher price and the combining banks “share similar cultures and values,” he said.
Vikram Pandit, Citigroup’s chief executive officer, is counting on the Wachovia purchase to help rebuild after three quarters of losses totaling more than US$17 billion.
The bank’s market value has dropped 38 percent this year to about US$100 billion, leaving it below Wells Fargo.
If Wells Fargo winds up with Wachovia, it would creep up on its New York rival with deposits of US$787 billion, compared with Citigroup’s US$826 billion.
Pandit insisted Citigroup would prevail, citing an exclusive agreement signed by Wachovia. Kovacevich told investors during a conference call the deal with Wachovia is “solid.”
Citigroup demanded that Wells Fargo abandon the takeover. Buying Wachovia would give Citigroup the third-biggest US bank network and cement its status as the nation’s largest lender by assets.
“Any such agreement between Wachovia and Wells Fargo is illegal,” Pandit, 51, said in the e-mail on Friday. “We continue to vigorously pursue Citigroup’s interest and rights in completing this transaction.”
Citigroup may take legal action to block the deal, or may increase its offer, said a person with knowledge of the deliberations.
A court challenge and a bidding war aren’t the only possible roadblocks for Wells Fargo: Its offer may lead to a face-off with federal regulators.
The Federal Deposit Insurance Corp (FDIC) helped broker Citigroup’s purchase when Wachovia’s health faltered. Chairman Sheila Bair said until a review of Wells Fargo’s offer is completed, the agency will stand behind the Citigroup deal.
“We wanted to make clear that until things are settled with what’s going on with this Wells bid, that the Citi deal was still there,” Bair said on Friday in an interview on Bloomberg Television’s Political Capital with Al Hunt, to be broadcast over the weekend.
Bair said the FDIC was reviewing the offer, and she told Hunt: “You shouldn’t” assume the US opposes Wells’ offer.
Other bank regulators said they haven’t evaluated Wells Fargo’s offer.
“We have not yet reviewed the new Wells Fargo proposal and the issues that it raises,” the Federal Reserve and Office of the Comptroller of the Currency said yesterday in a statement.
“The regulators will be working with the parties to achieve an outcome that protects all Wachovia creditors, including depositors, insured and uninsured, and promotes market stability,” the statement said.
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