October 07, 2008

Litigation is set to resume at noon, Wed. Oct. 8, between Citi and Wells Fargo over which will buy Wachovia Corp.—unless they reach a resolution, which reportedly might involve dividing the $812.4 billion-asset Charlotte, N.C.-based bank between them.

Bank spokespersons at neither potential acquirer would comment further Tuesday on whether a resolution was likely.

Both $2.1-trillion asset Citi and $575 billion-asset Wells issued statements Monday agreeing to suspend all legal proceedings, just hours after Citi filed a $60-billion lawsuit against Wells in New York State Supreme Court.

Citi sought damages from Wells on the basis that it had a prior claim on Wachovia, when Wells announced last Friday (Oct. 3) that it would buy Wachovia for seven times what Citi had offered. Wells offered to buy Wachovia outright for $15.1 billion, whereas Citi's $2.2 billion offer also required funding from the FDIC. Through the FDIC, the government would have absorbed any losses Citi took on Wachovia's bad loans beyond a $42-billion cut-off.

Some commentators have questioned whether Citi could sue in this case, since it would be tantamount to suing the FDIC.

In a statement Monday that it was seeking $60 billion in damages from Wells, Citi said: "At the time the Wachovia/Well Fargo transaction was announced, Citi was finalizing the agreements required to consummate its FDIC-assisted open bank transaction with Wachovia. Citi has been providing liquidity and market support to Wachovia since the day of the announcement."

Both New York-based Citi and San Francisco-based Wells are intent on creating truly nationwide franchises and consumer deposits have become a particularly prized source of liquidity as traditional credit sources increasingly dry up.

ABOUT THE AUTHOR