Citigroup Inc,Wells Fargo & Co and the takeover target they’re fighting for, Wachovia Corp, agreed to a two-day truce in their legal dispute at the urging of the Federal Reserve, setting the stage for a potential settlement.
The banks struck a standstill agreement, ceasing all “formal litigation activity” until noon in New York on October 8, Citigroup and Wachovia said in statements yesterday. The accord was “in consultation with the Federal Reserve,” they said.
Citigroup, based in New York, sued Wachovia and Wells Fargo for $60 billion today, claiming their agreement signed on October 3 was in violation of Citigroup’s deal to buy Wachovia’s branch operations four days earlier. San Francisco-based Wells Fargo agreed to buy the whole company for $15 billion, while Citigroup’s offer for parts of the bank, backed by the Federal Deposit Insurance Corporation, was for $2.16 billion.
“Citigroup has made some noise, they’ve gotten the attention and people are taking it seriously,” said Elizabeth Nowicki, an associate law professor at Tulane University in New Orleans. The Fed may be pushing the parties to work out an accord “after watching the back-and-forth for 24 hours and watching how serious Citigroup was going to be,” according to Nowicki.
“I believe the Fed got the idea very quickly that this wasn’t going to produce a very good result for anybody,” she said. FDIC Chairman Sheila Bair said yesterday that the banks and regulators were “working together to reach an outcome that serves the public interest.”
Citigroup seeks more than $20 billion in compensatory damages and $40 billion in punitive damages, claiming Wells Fargo and Charlotte, North Carolina-based Wachovia interfered with its bid, according to a complaint filed yesterday in New York State Supreme Court in Manhattan.
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‘Subverted’: The “transaction would have been signed and announced on Friday, October 3rd if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisers,” Citigroup said.
Citigroup seeks to complete its purchase as part of a rebuilding effort following $61 billion in losses tied to the mortgage-market collapse. Wachovia said the Wells Fargo offer is a better deal for investors, employees and taxpayers because, unlike Citigroup, it doesn’t rely on US government assistance.
Wachovia’s “agreement with Wells Fargo, which involves no government assistance, is proper and valid,” that bank said in a statement.
The New York state suit alleges breach of contract and tortious interference, where a third party disrupts an agreement between others. Citigroup also seeks an order barring Wachovia and Wells Fargo from continuing their merger talks and an order forcing Wachovia to negotiate with it “in good faith.”
Home Court: A separate lawsuit is pending between Citigroup and Wachovia across the street in Manhattan federal court. Wells Fargo and Wachovia yesterday filed papers seeking to move the state lawsuit to the US district court.
The two-day suspension in legal action was announced after regular US market trading. Citigroup fell 94 cents, or 5.1 per cent, to $17.41 at 4 pm on the New York Stock Exchange. Wachovia dropped 43 cents to $5.78, and San Francisco-based Wells Fargo declined 92 cents to $33.64.
The state suit was randomly assigned yesterday to New York Justice Charles Ramos, who on October 4 granted Citigroup’s request at an emergency hearing in his Cornwall, Connecticut home to extend its period of “exclusivity” in completing its purchase. The accord between Citigroup and Wachovia was set to expire yesterday. Ramos extended it until October 10, when a hearing in the case was scheduled.