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Wachovia, Suitors Agree to Truce
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Citigroup's initial deal for Wachovia relied on a commitment by the Federal Deposit Insurance Corp. to absorb all losses beyond $42 billion on a $312 billion portfolio of Wachovia's most troubled loans.
Wells Fargo's offer does not involve direct government support but instead takes advantage of a tax-rule change that would let the bank use Wachovia's losses to exempt its own profits from taxation. Stifel Nicolaus, a brokerage, yesterday estimated that the change would cause the government to lose $21 billion in tax revenue.
Citigroup could claim the same tax advantages against any future profit, although the company has not posted a profit since last fall.
Before the truce was declared, both sides had sought the help of their home-state courts.
Citigroup asked a New York court yesterday to suspend the Wells Fargo deal, force Wachovia to return to the bargaining table and award Citigroup more than $60 billion in damages.
"The Citi/Wachovia transaction would have been signed and announced on Friday, October 3rd if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors," the New York company said in a statement announcing the lawsuit.
To underscore the point, Citigroup delivered an agreement signed by its executives to Wachovia's lawyers in New York.
Meanwhile, a North Carolina judge issued an order restraining Citigroup from interfering in the Wells Fargo deal at the request of two Wachovia shareholders, one of them the company's former chief executive, Leslie Baker.
Wachovia also filed a suit in federal court Sunday seeking an order restraining Citigroup.
And U.S. Rep. Robin Hayes (R-N.C.) sent federal regulators a letter Friday, warning them against siding with Citigroup, on the grounds that the Wells Fargo deal was better for North Carolina.
