Charlotte, Citigroup, Citigroup stock price
Chuck Burton/AP
A ticker with Citigroup's stock price at the Wachovia Securities office in Charlotte, N.C.,
on Friday, Oct. 3, 2008.

Citigroup Steps Aside; Wells Fargo Buys Wachovia

October 10, 2008 02:07 PM
by findingDulcinea Staff
Citigroup relinquished its bid for Wachovia, leaving Wells Fargo as the N.C. bank’s sole suitor. But Citigroup plans to press on with its lawsuit against Wells Fargo.

Citigroup Backs Out of Bid for Wachovia; Wells Fargo to Take Over

Citing what Reuters called “dramatic differences in transaction structures and views of risks,” Citigroup abandoned its move to take over Wachovia. Wells Fargo & Co. plans to have its purchase of the bank wrapped up by the end of 2008. Citigroup is still pursuing a $60 million lawsuit against Wells Fargo for filing a bid after the former had an agreement in place with Wachovia.

Wachovia’s sale was thrown into doubt after Citigroup successfully halted the sale of Wachovia to Wells Fargo, alleging that Wells Fargo had undermined an earlier takeover attempt organized in collaboration with the FDIC (Federal Deposit Insurance Corp).

The Wells Fargo deal valued Wachovia at $14.8 billion, a significantly higher purchasing price than the original $2.16 billion bid made by Citigroup last week for Wachovia’s banking unit. Part of the Citigroup deal, which had already been approved by both banks’ boards, would have entailed the New York bank picking up $53 billion of Wachovia’s debt and $42 billion worth of losses of its $312 billion in loans. The FDIC was to cover the rest of the losses for $12 billion in preferred stock and warrants from Citigroup.

Citibank insisted that its initial offer came with an exclusive agreement barring Wachovia from accepting any other offers. Four days after the Citigroup sale was announced, however, Wachovia announced the preferable Wells Fargo bid.

Wells Fargo’s buyout plan is to be in stock, meaning that Wachovia shareholders would get some 0.1991 shares of Wells Fargo stock per Wachovia share. In addition to releasing $20 billion in securities, the lion’s share of it common stock, Wells Fargo is also scheduled to take responsibility for Wachovia’s debt and preferred stock.

A combined Wells Fargo-Wachovia would have total assets of $1.42 trillion, a deposit base of $787 billion, and 10,000 bank branches.

Wells Fargo CEO Dick Kovacevich was quoted as saying by the Associated Press that the Wells Fargo deal “provides superior value … to acquire only the banking operations of the company and because Wachovia shareholders will have a meaningful opportunity to participate in the growth and success of a combined Wachovia-Wells Fargo that will be one of the world’s great financial services companies.”

Charlotte is to remain the home of Wachovia’s retail, commercial and corporate banking units. Wachovia Securities is to keep its current base in St. Louis.

The potential sale of Wachovia to Citigroup was making many in Charlotte uneasy, as the banking sector is a major employer in the city. Wachovia employs 20,000 people in Charlotte, according to the Observer. In 2006, it was the city’s second-largest employer, behind Carolinas HealthCare System, which employed 26,283, according to the city’s chamber of commerce.

Charlotte Mayor Pat McCrory told the Charlotte Observer on Sept. 29, when it looked like the Citigroup offer would go through, that “it is essential that Wachovia maintains a strong presence in North Carolina.”

Bank of America, which took over Merrill Lynch in mid-September, also calls Charlotte home. Banktown, as the city is also known, is the 20th-largest city in the United States.

Background: CEO retired in June at board’s request

Problems had been plaguing the bank for several months. Kennedy Thompson was forced into retirement in June after Wachovia had lost half its market value in a year, according to findingDulcinea.

Related Topic: Wachovia under scrutiny for planned Greek Islands cruise

The same week as news leaked of a $440,000 spa vacation for 10 employees of an AIG subsidiary—taken days after the insurance conglomerate received an $85 billion loan from the Federal Reserve, 75 brokers at Wachovia subsidiary A.G. Edwards are preparing to set off on a seven-day, all-expense paid cruise of the Greek Isles.

Wachovia spokeswoman Teresa Dougherty was quoted as saying in the Chicago Tribune, "This is one way that we recognize our top financial advisors."

Opinion & Analysis: The fate of Charlotte

Mary Newsom, on her blog “The Naked City,” wonders what will happen to a 48-story tower Wachovia had been building in Charlotte.

“Will it stop the tower under construction? I think that’s unlikely. But an oversupply of office space may cause uptown rents to sink. Call it ‘affordable housing for offices,’” she wrote. Wachovia was supposed to take half the office space in the 1.5 million square-foot tower, which, as of June, had been fully leased, she said.

At the blog Ask Doug Smith, Doug says Banktown will never be the same.

“This is the day Charlotte leaders and financial analysts feared would come but hoped they would never see. Wachovia, so long the hunter, became the hunted,” Smith wrote. 

The financial clout the town got from having a large bank headquarters was a “recruiting tool” for Charlotte’s Chamber of Commerce, and gave “civic boosters something to brag about,” he said. 

Not everyone has been sympathetic to Charlotte’s possible plight. Yvette Kantrow, writing on the site, asked Banktown, “how does your barbecue taste now?” She said when Bank of America bought Merrill Lynch, the Observer gloated about a New York bank having to move down South.

Kantrow quoted columnist Doug Smith as saying, “When the merger is completed, those New York City dudes will be reporting to a Southern bank in a city where NASCAR rules and pork barbecue is gourmet cuisine. The North is taking note that the South has power and influence. And tasty barbecue. I bet those Merrill Lynch investment bankers will like it.”

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