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Monday, October 6, 2008

Wachovia CEO Steel: Why I want Wells, not Citi

   Wachovia Corp. chief executive Robert K. Steel, in a remarkable affidavit, told a federal court in New York yesterday how he cut conflicting deals with Citigroup, then with Wells Fargo & Co., under pressure from the Federal Deposit Insurance Corp. We got a copy from Wachovia's lawyers at Boies, Schiller & Flexner LLP.
   This reads like an early-talking-pictures melodrama: Wachovia' Steel is the embarrassed maiden, Wells chair Dick Kovacevich the conflicted hero, Citi's Vikram Pandit the mean older guy who fails to win her heart but won't take no for an answer, and the FDIC's Sheila Bair the anxious parent who wants troubled Wachovia out of the house and up to the altar quick. And we still don't know the ending. Highlights:
   1) WACHOVIA FALLS: On Thursday, Sept. 25, Wachovia's stock tumbled after the FDIC seized Washington Mutual. Next day, Wachovia started separate merger talks with both Citigroup and Wells.
   2) WELLS WAFFLES: On Saturday, Sept. 27, Wells' Kovacevich told Steel he wanted to buy all of Wachovia for stock, that he could close the deal in two days, and that he wouldn't need FDIC help. But the next day, Kovacevich reversed and said Wells "was not prepared" to buy Wachovia so fast "without substantial government assistance."
   3) CITI OR DIE: After Kovacevich hung up, FDIC Chairman Bair called Steel to say "this situation posed a systemic risk to the banking system." She ordered Wachovia to start talking to Citi. Next morning, Steel told his board in a conference call that it had two choices: talk to Citi and the FDIC, or go bankrupt. Better Citi than bankrupt, said the board. Talks started, and Wachovia's in-house lawyer signed a "not binding" Agreement in Principle for Citi to buy its bank assets for $2.2 billion. The FDIC agreed to cover some losses, in exchange for Citigroup stock. 
   4) TOO MANY LAWYERS: But negotiations to close the deal were "extremely complicated and difficult." Also, Citi refused to buy the whole company.
   5) WELLS DECLARES: On Thursday, Oct. 2, the FDIC's Bair told Steel that Wells was going to offer $7 a share "and encouraged me to give serious consideration to that offer," adding that "the Wells Fargo proposal sounded superior to the Citi proposal." Wells' Kovacevich then sent over his $15 billion proposal. Next day, Wachovia's board accepted, and Steel called Citi chairman Pandit to tell him that deal was off.
   6) TRUE LOVE: "The Wells Fargo Proposal, in my opinion, is far superior to the Citigroup proposal," Steel wrote. The price "is substantially greater," and "no government assistance is required"; Wells is financially a stronger bank than Citigroup; and "the entire (Wells) transaction structuer is simpler, easier for shareholder to unsderstand, more likely to close and more likely to receive shareholder approval than the Citigroup offer."
   7) CITI THE STALKER: But Citi's still trying to force its deal, which threatens to "undermine" Wells' offer and "severely damage" Wachovia, Steel concluded. 
Posted by Joseph N. DiStefano @ 2:26 PM  Permalink | 2 comments
Comments   
  • 0 like this / 0 don't   •   Posted 3:00 PM, 10/06/2008
    Under normal circumstances, I have no problem with big business making life rough for each other as Citi is doing right now to Wells & Wachovia. But with the meltdown raging outside, perhaps Citi should be encouraged by private industry leaders and government officials to step aside gracefully and not take opportunities to weaken industry brethren.
    — JeffA
  • 0 like this / 0 don't   •   Posted 3:54 PM, 10/06/2008
    Very interesting. If I were in Citi's shoes, I'd back off & focus on improving my own fundamentals. The industry is better served with WF, not Citi, doing this deal.
    — Paul B


2 comments
About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com
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