BANKS SALE:CITIGROUP YESTERDAY sued Wachovia for up to $60 billion (€44.4 billion) in damages for breaking an exclusivity agreement when it clinched a rival deal to sell itself to Wells Fargo.
The suit came as a growing cast of lawyers, regulators and shareholders weighed in to the increasingly bitter battle between Citi and Wells over the takeover of Wachovia.
After a weekend of legal wrangling, the Federal Reserve intervened on Sunday evening to push for the two bidders to reach a compromise, underscoring how regulatory intervention in merger talks has become standard as regulators push to restore order in financial markets.
One option under discussion with the Federal Reserve would be to split Wachovia between the two bidders: Citi would take Wachovia branches and deposits in some states and Wells Fargo would assume the rest of the bank.
A regional split could see Citi take on Wachovia's branches in New Jersey, California and Florida - branches which Citi had retained an option to buy if its agreement with Wachovia was not consummated.
The Federal Deposit Insurance Corporation has also been involved in brokering a deal for Wachovia: first through providing assistance for Citi to take over Wachovia's banking operations, and days later by encouraging Wachovia to give "serious consideration" to an offer from Wells.
Citi said last Monday that it had reached a preliminary agreement to pay $2.2 billion for Wachovia's banking assets in a deal that included an FDIC guarantee for any losses beyond $42 billion on a $312 billion mortgage portfolio. But Wells Fargo said on Friday it had signed an agreement with Wachovia to buy the whole of the company for $15 billion, without any government guarantees.
FDIC chairman Sheila Bair informed Bob Steel, Wachovia's chief executive, on Thursday that an offer was pending from Wells Fargo, Mr Steel said in an affidavit filed over the weekend.
Mr Steel added that at his request Ms Bair had called to inform Wachovia's general counsel of the offer because he was aboard an aircraft, about to take off.
The rival bid sparked a frenetic weekend of legal disputes in New York and North Carolina, where Wachovia is headquartered.
On Sunday, a New York court granted Citi more time for exclusive negotiations with Wachovia, putting the bank's talks with Wells Fargo on hold. However, later the same day, the ruling was overturned by the appeals court.
Another court in North Carolina on Sunday evening granted a restraining order to prevent Citi from attempting to enforce its exclusivity agreement with Wachovia.
Wachovia shares were briefly suspended yesterday. - (Financial Times service)
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