I had to re-read this alert twice, it was so surprising. 

 

 

Citigroup is pushing hard, with the support of regulators, to finalize its $2.2 billion asset purchase agreement (samples linked, actual agreement not available yet) for the banking operations of Wachovia, but it seems that Wachovia’s board has now thrown its support to what it considers a superior proposal from Wells Fargo.

 

Under the new deal, Wells Fargo would acquire all of Wachovia’s assets including its vast deposit network, its huge brokerage business and its investment management division for a reported $15 billion.  Wells Fargo had walked from the discussions late Sunday night after it uncovered issues around part of Wachovia’s loan portfolio, but it is back with the support of Wachovia’s board.

 

Citigroup is working to enforce what it claims is are exclusivity or no shop agreements with Wachovia (also links to samples), while Wachovia is publicly embracing the Wells deal.  The Fed, meanwhile, is in a tough position, as it continues to back the Citigroup deal, in spite of the fact that the Citigroup requires loan guaranties from the Fed, while the Wells Fargo deal does not.  In any event, both Citigroup and Wells Fargo are raising capital to cover their own portfolio losses while fighting over the Wachovia assets.

 

A Wells Fargo – Wachovia combination would once again dramatically alter the landscape, returning Citigroup to a second tier retail banking player and giving Wells Fargo enormous access to retail and brokerage branches on the East coast in particular.  Interestingly, Wells Fargo had indicated as late as early September that it preferred to do a small deal, if any, but the buying opportunities have simply been too good.  I recall that Wells Fargo’s Chairman and former CEO Dick Kovacevich said he felt “like a kid in a candy store” 2 weeks ago.  More undoubtedly to come.