Citi Slams Wells Fargo on Wachovia Deal; Get Ready For A Rumble

If you thought banking was boring, the unfolding story between Citi, Wachovia, and Wells Fargo should dispel that notion. Citi, like a jilted lover, is threatening legal action to block a deal announced today between Wachovia and Wells Fargo. Wachovia broke an earlier deal with Citi in order to shack up with its West Coast suitor.

"Wells Fargo's conduct constitutes tortious interference with the Exclusivity Agreement," Citi said in a statement. Citigroup demanded that Wachovia and Wells Fargo abandon their $15 billion stock deal announced earlier in the day. Citi said it "has substantial legal rights regarding Wachovia and this transaction."

To add to this love triangle, FDIC Chairman, Sheila Bair who needs to sign off on any banking deal has already blessed the Citi/Wachovia marriage. She said in a statement that she 'stands behind" the deal. She also went on to say:

"Since the close of our bidding process, Wells has apparently re-assessed its position and come forth with this new offer that does not require FDIC assistance...It should be emphasized that both the Citigroup proposal as well as the new Wells proposal would stand behind all creditors including depositors.''

This leaves the door open for either bank to prevail. The 24/7 Wall Street Blog had this analysis:

"What is interesting here is that this may actually be a game changer for the banking sector. It has two paths that could come from it. First, the FDIC hasn't keyed in on this. We do not know if the FDIC will step in yet to say the original Citi deal has already been reached or if either part will make a lawsuit out of this. Second, this could put other troubled banks into play. Sovereign Bancorp (NYSE: SOV), National City Corporation (NYSE: NCC), and Fifth Third Bancorp (NASDAQ: FITB) are all trading higher on this in hopes that Citi or others will step in now and snatch them up. This might even mean there is something left for the common shareholders there too."

Wells's offer is superior from a shareholder and taxpayer standpoint. But at the same time, I can't help but have a bad taste in my mouth from Wells's tactics. They left Wachovia to die and now that Citi came to the rescue, they are trying to muscle back in. Of course, all is fair in love, war, and business.