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Citigroup cedes in battle for Wachovia

Its decision clears the way for Wells Fargo to take over the troubled bank. But it will seek damages in court.

October 10, 2008|From the Associated Press

NEW YORK — Citigroup Inc. backed out of negotiations with federal regulators and Wells Fargo & Co. in its battle for Wachovia Corp. but vowed to have its day in court.

Citigroup said it remained willing to complete its original deal with the Charlotte, N.C.-based bank. However, although it is seeking damages for breach of contract, it has decided not to challenge the Wells Fargo-Wachovia deal in court. That stance paves the way for Wells Fargo to close its $11.7-billion stock deal.

"We're pleased Citigroup has abandoned its efforts to interfere with Wachovia's planned merger with Wells Fargo," Wachovia spokeswoman Christy Phillips-Brown said. "We look forward to completing our merger with Wells Fargo, which we have always believed is in the best interest of shareholders, employees, creditors and retirees, as well as the American taxpayers, and it imposes no risk to the FDIC fund."

New York-based Citigroup said that it believed it had strong legal claims against Wachovia, Wells Fargo and their officers and directors for breach of contract and that it planned to pursue its claims "vigorously."

Citigroup came to the rescue of an ailing Wachovia when it agreed Sept. 29 to buy Wachovia's banking operations for $2.1 billion in a deal brokered by the Federal Deposit Insurance Corp.

Slammed over the last year by mortgage defaults, Wachovia was in considerable trouble. Wachovia disclosed in court documents that it agreed to the acquisition "with the understanding that a seizure of its banking assets later that day by the Federal Deposit Insurance Corp. would occur" unless it accepted Citigroup's proposal.

Four days later, San Francisco-based Wells Fargo stunned Citigroup by announcing that Wachovia's board had agreed to an $11.7-billion, all-stock offer.

Originally, the deal was valued at $15.1 billion, or $7 a share, but Wells Fargo's stock has declined since it was announced.

"Without our willingness to engage in this transaction, hundreds of billions of dollars of value would have been seriously threatened," Citigroup said in a statement. "We stood by while others walked away. Now, our shareholders have been unjustly and illegally deprived of the opportunity the transaction created."

The battle for Wachovia moved to both state and federal court over the weekend. Citigroup charged that Wells Fargo violated an exclusivity agreement it had with Wachovia.

On Monday, the parties agreed to a legal standstill, which was extended Wednesday and set to expire Friday morning.

Federal Reserve officials had been working this week with Citigroup and Wells Fargo to try to reach a quick resolution and avoid a lengthy court battle. The negotiations centered on splitting up Wachovia between Citigroup and Wells Fargo.

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