Citigroup, Wells Fargo In Bidding War For Wachovia

This is the way capitalism is supposed to work. The weak go under, merge, or get swallowed up. It does not cost anyone a dime.

The New York Times is reporting Citigroup, Wells Fargo bid for Wachovia

Citigroup (C) and Wells Fargo(WFC) were locked in a bidding war on Sunday over a possible emergency takeover of the Wachovia Corporation, people involved in the talks said.

The government, led by the Federal Reserve and Treasury Department, has been involved in the talks as well, these people said. But so far, the government is resisting pressure to help bidders by guaranteeing a part of Wachovia’s assets the way it did for Bear Stearns when it was sold to JPMorgan Chase in March.

A timetable for a potential deal is not clear, with the talks possibly extending beyond Sunday night.

Either way, Citigroup and Wells Fargo are unlikely to bid more than a few dollars a share for Wachovia, substantially less than the $10 at which its shares were trading Friday. It was unclear whether bondholders would also take a steep discount on their holdings, or be entirely wiped out.

Other aspects of the deal also remain in flux. One is whether all of Wachovia is up for sale, or whether the company might be carved up.

Citigroup and Wells Fargo, for example, might bid only on Wachovia’s retail banking business. Wachovia retail brokerage, the second largest behind Merrill Lynch, might remain independent. It was unclear what would happen to Wachovia’s small investment bank.

Both Citigroup and Wells Fargo are interested in acquiring Wachovia’s branches and roughly $400 billion in deposit financing. For Wells Fargo, a deal would extend their branch banking network eastward across the Mississippi, creating a nationwide franchise that would compete with Bank of America and JPMorgan Chase. Citigroup and Wachovia declined to comment. Wells Fargo did not immediately return calls seeking comment.

For Citigroup, the deal would vastly expand its retail branch network after struggling to build one for years. It would also give it access to more stable customer deposits, so it could rely less heavily on outside investors for funds. Bank executives there see this as game-changing opportunity.

If this deal is contingent on allowing Citigroup or Wells Fargo to dump Wachovia’s $800 billion loan portfolio on to the taxpayer and cherry pick the assets I am not in favor of it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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