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CHARLOTTE, NC-Citigroup Inc. on Thursday backed out of negotiations to take over locally based Wachovia Corp., nearly two weeks after tendering a $1-a-share offer that was arranged by the FDIC. However, the New York City-based banking giant indicated it will sue San Francisco-based Wells Fargo & Co. for interfering with its original bid.
A hearing on the matter in US District Court set for Friday was postponed to next week, possibly Monday, so that the judge can go over the latest developments. Meanwhile, federal antitrust regulators quickly approved the merger of Wells with Wachovia Friday morning.
Wachovia, which has been plagued with bad mortgage debt and was in danger of failing before the $2.1-billion Citi deal emerged Sept. 29, stated simply that it was pleased with the outcome and that it believes a merger with Wells will be in the best interest of shareholders and employees. Wells originally offered Oct. 3 to buy Wachovia in a $15-billion stock swap with no government assistance, though the value has since declined to just under $12 billion reflecting its own declining stock price.
Citi's argument that it had dibs on Wachovia before Wells made its offer is reflected in court documents filed by Wachovia, which stated that it believed "a seizure of its banking assets later that day by the Federal Deposit Insurance Corp." was imminent. Citi stated Thursday night that "hundreds of billions of dollars of value would have been seriously threatened" had it not intervened on behalf of the FDIC, adding: "We stood by while others walked away."
The latest move by Citi ended a flurry of legal action at state and federal court levels from New York to North Carolina that began last weekend. Citi seeks $60 billion in direct and punitive damages from Wachovia and Wells, and now says it will "vigorously" pursue its claims of tortious interference.
Banking analysts believe a Wells-Wachovia merger would be more preferable to both sides, since each operates on opposite coasts. Wachovia, which has acquired several smaller banks since 2000, has nearly 3,400 branches primarily along the East Coast and occupies space in numerous office buildings in larger cities.
Wells CEO John Stumpf issued a note to Wachovia employees assuring that they would remain a part of the larger bank and that layoffs will hopefully be avoided. "An important measure of success for this integration will be our ability to retain as many of the talented Wachovia team members as possible," Stumpf said.
It appears Wachovia faces legal trouble on another front. Earlier this week, New York City-based law firm Milberg LLP named Wachovia as a sole defendant in a class action over the sale of Fannie Mae Series T Preferred shares by the bank's securities and capital markets subsidiaries.
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