The Mad Legal Dash for Wachovia
Federal Lawsuit: Wachovia has sued Citi in federal court in the Southern District of New York. Wachovia is claiming that the exclusivity agreement between it and Citi is void because of the same Section 126(c) of the bailout law, and furthermore is invalid because it prevents Wachovia from accepting the $15.1 billion bid by Wells Fargo – 7 times higher than Citi’s own bid.
So, the big issue is what exactly does this Section 126(c) require? The provision states:
(c) UNENFORCEABILITY OF CERTAIN AGREEMENTS.—Section 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)) is amended by adding at the end the following new paragraph:
(11) UNENFORCEABILITYOFCERTAINAGREEMENTS.—No provision contained in any existing or future standstill, confidentiality, or other agreement that, directly or indirectly—
(A) affects, restricts, or limits the ability of any person to offer to acquire or acquire,
(B) prohibits any person from offering to acquire or acquiring, or
(C) prohibits any person from using any previously disclosed information in connection with any such offer to acquire or acquisition of, all or part of any insured depository institution, including any liabilities, assets, or interest therein, in connection with any transaction in which the [FDIC] exercises its authority under section 11 or 13, shall be enforceable against or impose any liability on such person, as such enforcement or liability shall be contrary to public policy.
The FDIC action with respect to Wachovia on Monday was an action under section 13, and so under this section’s plain terms this language would seem to invalidate Citi’s exclusivity agreement.
Boies brings legal star power to Wachovia case
He's been called the Tiger Woods of the courtroom.
He represented the federal government in its attempt to break up Microsoft, Napster in its battle with the recording industry, and Al Gore in his failed bid to force a vote recount in Florida after the 2000 presidential election.
Now, 67-year-old David Boies is representing Wachovia in what is sure to be a blockbuster legal battle between Citigroup and Wells Fargo over which bank will ultimately buy the Charlotte-based company. Boies' firm – Armonk, N.Y.-based Boies, Schiller & Flexner – was active in court hearings this weekend on Wachovia's behalf, and more hearings are expected this week.
In Boies, Wachovia has hired a lawyer able to quickly weed through an array of complicated facts and construct a compelling argument.
“He's quite simply one of the smartest lawyers I've ever known,” longtime friend Walter Dellinger of Chapel Hill, a Duke law professor, said Sunday. The two were classmates at Yale Law School.
Wachovia to be split?
After a weekend of legal wrangling in New York over Wachovia’s fate, Citigroup and Wells Fargo were negotiating Sunday night, under pressure from regulators, on a compromise that could essentially carve up the Charlotte bank among the two feuding buyers, the Wall Street Journal reported.
Under the leading plan, Citigroup would get Wachovia branches in the Northeast and mid-Atlantic regions and Wells Fargo would get branches in the Southeast and California, as well as Wachovia’s asset management and brokerage businesses, the Journal reported. The Federal Reserve was pushing the discussions, the Journal reported, as it worried about the reaction of jittery investors today.
Comment: I predict this will be resolved by this time next week - probably before.