Big banks butt heads

US regulators seek to resolve rival Wachovia bids

Excerpts:

U.S. banking regulators said on Friday they will seek to resolve rival acquisition proposals by Citigroup Inc and Wells Fargo & Co for Wachovia Corp .

In a surprise announcement, Wells Fargo agreed to buy Wachovia for more than $16 billion, four days after Citi agreed to acquire Wachovia's banking operations in a government-backed deal that involved the Treasury Department and the Federal Reserve.

The Federal Deposit Insurance Corp (FDIC) announced a shotgun merger proposal between Citi and Wachovia on Monday, with the FDIC agreeing to absorb up to $42 billion in losses should Wachovia's $312 billion pool of loans later turn sour.

The deal, reached in consultation with President George W. Bush, also allowed the FDIC to receive $12 billion in preferred stock and warrants from Citi for taking on possible future risks.

A deal with Wells Fargo, if consummated, could wipe out potential risks to the government and taxpayers that a government-approved Citi deal would include. Citi said Friday it has an exclusivity agreement with Wachovia.

The FDIC said it stood by the Citi deal, but at the same time left open the possibility of accepting Wells Fargo's proposal after reviewing it.

It was not immediately known if FDIC Chairman Sheila Bair or her agency participated in the negotiations between Wells Fargo and Wachovia, but Bair said in a statement that the new offer "does not require FDIC assistance."

Comment: Image from South Central Service Cooperative. If I understand the sequence of events (and I really am not in the know!): Sunday 9/27: Wells Fargo walked away from the Wachovia acquisition; Monday 9/28: The FDIC pushed Wachovia into a City acquisition; Friday 10/4: Wells came back to snatch Wachovia back! It's a no-brainer for the government. Wells is not requesting FDIC assistance! The Wells deal is better for Wachovia's stockholders and better for the FDIC.