Judge blocks Wells Fargo takeover of Wachovia

A judge has temporarily blocked Wells Fargo & Co.'s eleventh-hour takeover of Wachovia Corp., allowing Citigroup Inc. to argue that its offer for the troubled North Carolina bank should prevail.

Ruling late Saturday, Judge Charles Ramos in New York state court put the Wells-Wachovia deal on hold until a hearing this week. Ramos ruled over objections from Wachovia, which accepted Wells Fargo's $7-a-share offer Friday for the entire bank, brushing off Citigroup's earlier agreement in principle to buy most of Wachovia's operations for $1 a share.

In a statement e-mailed to The Times today, Wachovia indicated it would continue to stand by the Wells Fargo deal -- unless a better proposal emerged.

"Wachovia believes its agreement with Wells Fargo is proper, valid and is in the best interest of shareholders, employees and the American taxpayers," it said. "Under that agreement, Citigroup is always free to make a superior offer to Wachovia."

The dispute clouds the outcome of one of the hasty shotgun marriages imposed by the Federal Reserve and bank regulators, who say they are acting to prevent a meltdown of the U.S. financial system.

What is emerging as a classic takeover battle can also be seen as a vote of confidence in the long-term prospects for that system.

Charlotte-based Wachovia has been socked by losses, especially on exotic mortgages acquired in its 2006 purchase of Oakland's World Savings. Wachovia was put up for sale just over a week ago by the Federal Deposit Insurance Corp., which feared other banks would no longer do business with it, triggering a collapse.

New York's Citigroup and San Francisco's Wells Fargo, coveting Wachovia's sprawling retail operations in the East and Southeast, were the leading suitors, poring over Wachovia's books to evaluate the toxicity of its mortgages, loans to home builders and securitized commercial real estate loans.

But Wells Fargo walked away from the auction, saying it needed more time to analyze the data. Wachovia's board tentatively accepted Citigroup's offer Monday, with details to be worked out and a final agreement signed later.

The agreement, worth $2.2 billion to Wachovia shareholders, called for Citigroup to purchase Wachovia's banking operations, but not its national brokerage firm, mutual funds and certain other assets.