Wells Fargo, Citigroup play poker for Wachovia
A high-stakes, multibillion-dollar poker game is under way in the banking industry today. It's New York City's Citigroup vs. Wells Fargo of California. And what's in the kitty? The winner gets Wachovia Bank (and one player would get Wachovia Corp., which comes with Wachovia Securities, as well), major access to Florida's banking consumers (among other geographic gains) and some bragging rights. But who's going to win?
Citigroup announced a deal Monday to buy Wachovia with guarantees provided by the Federal Deposit Insurance Corp. So the transaction involves government backstops. And it only includes Wachovia's banking operations -- not its Wachovia Securities business. Responding to this morning's Wells-Wachovia agreement, Citigroup cried foul: We had a deal and this is bad business to renege. Here's what Citigroup says.
"Citi has demanded that Wachovia and Wells Fargo terminate and not proceed with any proposed transaction, any conduct in furtherance thereof, or any other act in violation of the Exclusivity Agreement. Citi has substantial legal rights regarding Wachovia and this transaction."
Then Citigroup leaves itself an out: "With or without this transaction, Citi maintains an unmatched, globally dominant franchise."
To be sure, Wells Fargo's proposed deal has a "Hey, wait a minute" feel to it. Or is that just rough-and-tumble capitalism we smell? Wachovia CEO Bob Steel, in a phone conference with testy analysts, stresses the Wells Fargo deal involves no government assistance -- a big plus amid all the federal bailouts and assistance deals these last few weeks. But the FDIC, if only to show it will honor its commitments, says it stands behind Citigroup. Privately, we suspect, the FDIC would be ecstatic not to be on the hook down the road, as the Citigroup deal entails, for bad Wachovia debts. And Citigroup probably needs little reminding it has some businesses of its own to shore up -- with or without Wachovia.
As of mid Friday, Wells Fargo has a market value of $122-billion, Citigroup weighs in at $112-billion, and the target -- diminished Wachovia -- is worth $14-billion.
-- Robert Trigaux, Times Business Columnist