Trouble in Paradise
In the wake of today’s announcement that Wells Fargo is buying Wachovia, it seems that Citibank is in quite a tizzy. Citi had entered into an agreement to buy portions of Wachovia, and they’re pretty pissed off that Wachovia backed out at the last minute, apparently to take the better deal with WFC. In fact, they’re even threatening legal action, stating a “Breach of Exclusivity Agreement”. Not sure if there is anything truly actionable here, or if they’ll really move forward with a lawsuit, but honestly Citibank is kind of looking like a brat who didn’t get their way, demanding that the two firms terminate their merger immediately. And to boot, the FDIC is backing them. Anybody who says the world of finance is boring is off their rocker. There’s more drama here than on the Lifetime network.
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Your reaction is the same as
Your reaction is the same as mine when I first heard the news. One thing to consider though is that without Citi's actions, Wachovia would have gone bankrupt. Perhaps Wells wanted to wait for bankruptcy and then buy the assets at (even lower) firesale prices, which Barclays successfully pulled off for Lehman. Assuming this was Wells' aim, they failed when Citi stepped in. Citi rescued Wachovia and allowed the company to continue to exist. Wells is now rushing back and doing what they probably should have done day one.
My analysis could be wrong, as I am not sure if a bankrupt Wachovia has the same value as a bankrupt Lehman, although I would assume so. Also, this is a capitalist society and if Wells wants to pay more now, even if Citi is the reason Wachovia is alive, to the victor go the spoils. But if my thoughts are not way off base, then I definitely am no longer of the view that Citi is being a spoiled brat. They took the risk that Wells chose not to, and they are the reason that a huge financial institution did not go down in the first place.