Citi, Wells Fargo fight may split Wachovia

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Citigroup Inc and Wells Fargo & Co may end up dividing Wachovia Corp, the Charlotte, North Carolina-based bank staggered by almost $53 billion of mortgage-related losses.

Wells Fargo’s $15.1 billion offer on October 3, 2008 trumped New York-based Citigroup’s $2.16 billion bid for parts of Wachovia, setting up a takeover fight for a bank with 20 million customers and almost $450 billion of deposits.

“Citi’s purchase was too cheap for the assets and operations involved,” said Jason Pride, research director, Haverford Trust Co in Haverford, Pennsylvania, which held about 70,000 Wachovia shares at the end of June.

To end a legal skirmish, Citigroup may agree to take Wachovia’s branches in the northeast and mid-Atlantic regions, while Wells Fargo would get the Southeast and California branches, as well as Wachovia’s asset-management and brokerage units, the Wall Street Journal reported, citing people familiar with the situation. Officials from the banks declined to comment.

Vikram Pandit, chief executive officer, Citigroup Inc, has been counting on the purchase of Wachovia’s banking operations to help rebuild after three quarters of losses totaling more than $17 billion. San Francisco-based Wells Fargo said last week that acquiring Wachovia would give it a banking presence in 39 states, up from 24, and make it the No 1 consumer bank in 10 of the country’s 20 biggest metropolitan areas.

Citigroup tried to block Wells Fargo’s agreement in court over the weekend, prompting officials from the Federal Reserve and US Treasury to intervene.

Citigroup dropped 18% to $18.35 on October 3 in New York Stock Exchange composite trading, after having its biggest share decline in about 20 years. Wachovia rose 59% to $6.21 and Wells Fargo declined 1.7% to $34.56.

Wachovia has said Wells Fargo’s bid is better for shareholders, employees and taxpayers because, unlike Citigroup, it doesn’t rely on government aid.

Under the split being discussed now, neither Citigroup, the biggest US bank by assets, nor Wells Fargo would get US financial assistance, the Journal said.

The two suitors spent the weekend wrangling in state and federal court, with Citigroup winning a New York state ruling on October 4, 2008 that said it had the exclusive right to negotiate a takeover with Wachovia until October 10, 2008. That ruling was overturned on appeal on Sunday, leaving Monday’s expiration date in place.