Wells Fargo Spoils Citi's Party (Again)

Thoughts on this article from Dealbook?

"Citigroup has traditionally seen Bank of America and JPMorgan Chase as its main rivals, competing fiercely with the other two giant universal banks across a broad spectrum of businesses.

But at least twice over the past year or so, the firm that’s spoiled Citi’s best-laid plans wasn’t on the East Coast.

It was Wells Fargo, the slightly smaller rival out West that proved nimbler in outflanking Citi, whether in the pursuit of Wachovia or in raising enough money to pay back government bailout money.

Memorably, last year Wells Fargo made an audacious bid to snatch up Wachovia even after the Charlotte-based bank agreed to sell portions of itself to Citi for a rock-bottom $1 a share, in a deal backed by the Federal Deposit Insurance Corporation.

Wells, which had walked away, suddenly came back in early October with a far sweeter proposal for all of Wachovia — worth $15 billion, seven times what Citi was offering. Moreover, the Wells deal had no government presence, and it was for all of Wachovia.

The deal set off a week’s worth of bitter litigation, staffed by high-priced lawyers like David Boies of Boies, Schiller & Flexner, in which Citi vociferously protested Wells’ jumping the earlier Wachovia deal. (Then there were other, stranger developments, including a race to establish jurisdiction for the litigation that included a last-minute trip to Cornwall, Conn. A refresher of the shenanigans is here.)

But what began with fast and furious litigation concluded with a whimper: Citi agreed to walk away. (While Wells may be suffering some indigestion from swallowing Wachovia and its giant load of adjustable-rate mortgages, it gained a significant presence on both coasts.)

Fast-forward to this week. Citi announced early Monday morning that it had reached an agreement with the Treasury Department to pay back its government bailout money by selling at least $17 billion shares, a development that had been telegraphed for days. The plan involved masterminding the biggest equity offering in corporate American history.

Hours after Citi’s announcement, however, Wells made its own, declaring that it would sell $10.4 billion worth of new shares to repay its government bailout money. Wells managed to complete its own, smaller offering that night, sapping demand from investors well before Citi brought its own sale to market.

What happened next? As The New York Times reported, by Tuesday evening, Treasury officials got word that the stock might be priced below $3.25 a share. By Wednesday morning, they concluded that the government would forgo selling its shares immediately.

By beating Citi yet again, Wells has freed itself from government control. Citi may no longer bear the scarlet letters of TARP, but it’s still subject to (looser) restrictions imposed by Treasury. And it’s left looking like it came just a little too late to the party."

– Michael J. de la Merced http://dealbook.blogs.nytimes.com/2009/12/17/well…