Wachovia - behind the scenes

FDIC says Wachovia deal in the 'public interest' may come today

Excerpts:

... legal filings show dire concerns about the Charlotte bank’s health.

Following the failure of Washington Mutual on Thursday Sept. 25 and the House of Representatives initial rejection of a government bailout, Wachovia’s stock faced significant pressure, Wachovia chief executive Bob Steel said in an affidavit filed over the weekend.

In response to these concerns, the bank began negotiating on Saturday with Citi and Wells Fargo about a possible merger, Steel said. Wells chairman Dick Kovacevich indicated he was interested in buying all of Wachovia, but by 6 p.m. Sunday stepped aside. Steel then received a call from FDIC chairwoman Sheila Bair, who said the situation posed “systemic risk” and directed Steel to talk to Citi.

At a Wachovia board meeting at 6:30 a.m. on Monday Sept. 29, Steel told directors that the bank had two choices: file for bankruptcy or negotiate with Citi and the FDIC, which provided assistance in the transaction. The deal was announced late that morning.

At the time, Wachovia “was on the verge of collapse, burdened by bad loans and caught up in a liquidity crisis that threatened its very survival,” Citi said in the complaint it filed today. “Had Citigroup not stepped up in this way, Wachovia would have failed the following day and the debt issued by its holding company would have collapsed, with potentially devastating implications for the stability and security of the financial markets.”

Negotiations on the final merger agreement with Citi, however, proved “extremely complicated and difficult,” Steel said, adding that Wachovia was under “tremendous” pressure from regulators and Citi to reach an agreement before today. Wachovia suggested a transaction that would buy all of the company, but Citi refused, Steel said.

At 7:15 p.m. on Thursday, Steel said he received an unexpected call from FDIC chairwoman Sheila Bair telling him to be on the lookout for an offer from Wells. He was preparing to board a flight from New York to North Carolina so he told her to call the bank’s general counsel Jane Sherburne. When he landed, he talked with Bair again before receiving a 9 p.m. call from Wells Fargo chairman Dick Kovacevich. A few minutes later, Kovacevich e-mailed Steel a signed merger agreement.

Early Friday morning, Wachovia chief executive Bob Steel said that he and the bank’s advisers told the Wachovia board that it faced being put into FDIC receivership unless it completed a deal with either Citi or Wells Fargo. The board then approved the Wells deal.

Meanwhile ...

Citigroup in 'standstill agreement' on litigation

Wachovia, Citigroup and Wells Fargo said this afternoon that they have reached an agreement to standstill on all litigation activity effective immediately.

The agreement will terminate at noon on Wednesday, unless extended.

"We are pleased to participate with the Federal Reserve Board in a fair-minded, good faith process to achieve a prompt and successful outcome,” Citi said in a statement.

...

New York-based Citi said it remains “very excited” about its plan to buy the bulk of Wachovia, and that the Citi-Wachovia deal would have been finalized last Friday “if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors.”

The $60 billion figure stirred ridicule from the Web site wachoviavote.com, which was organized by shareholders who oppose the Citi deal. Citi's offer last week to buy Wachovia for $2.1 billion essentially valued the Charlotte bank at $1 per share. The $60 billion demand “is a pretty twisted way of saying Wachovia is worth $28 a share…,” the Web site said in a post today.

Comment: Visit the wachoviavote.com site for information from a Wachovia shareholder perspective.

We oppose this transaction [Citigroup transaction] for several reasons.
To begin with, any deal should be structured as an exchange of Wachovia stock for shares of the acquiring entity so that the deal involves not just the bank but the entire Wachovia, which is worth a lot more as an entire company.
The way this deal is structured Wachovia is selling its biggest asset, the bank, for practically nothing. The shareholders of Wachovia get nothing in return, and we are left holding shares of a much, much smaller Wachovia without its biggest asset.
It's hard to imagine that the fourth largest bank in the nation, with $800 billion in assets, $450 billion in deposits, 3300 branches in 21 states, 15 million household and business customers; 15.4 million online product and service enrollments and 5.1 million active online customers is only worth an amount equal to $1.00 per share of Wachovia stock.