Regulators Seek to Resolve Rival Citi, Wells Fargo Bids for Wachovia

By and | October 3, 2008

U.S. banking regulators said Friday they will seek to resolve rival acquisition proposals by Citigroup Inc and Wells Fargo & Co for Wachovia Corp.

In a surprise announcement, Wells Fargo agreed to buy Wachovia for more than $16 billion, four days after Citi agreed to acquire Wachovia’s banking operations in a government-backed deal that involved the Treasury Department and the Federal Reserve.

The Federal Deposit Insurance Corp. (FDIC) announced a shotgun merger proposal between Citi and Wachovia on Monday, with the FDIC agreeing to absorb up to $42 billion in losses should Wachovia’s $312 billion pool of loans later turn sour.

The deal, reached in consultation with President Bush, also allowed the FDIC to receive $12 billion in preferred stock and warrants from Citi for taking on possible future risks.

A deal with Wells Fargo, if consummated, could wipe out potential risks to the government and taxpayers that a government-approved Citi deal would include. Citi said Friday it has an exclusivity agreement with Wachovia.

The FDIC said it stood by the Citi deal, but at the same time left open the possibility of accepting Wells Fargo’s proposal after reviewing it.

It was not immediately known if FDIC Chairman Sheila Bair or her agency participated in the negotiations between Wells Fargo and Wachovia, but Bair said in a statement that the new offer “does not require FDIC assistance.”

In a separate statement, Bair said her agency stands behind its previously announced agreement with Citi.

The FDIC could not immediately be reached for comment.

In a joint statement, the Fed and the Office of the Comptroller of the Currency said they had not yet reviewed the new Wells Fargo proposal, but they reviewed Citi’s bid extensively.

“The regulators will be working with the parties to achieve an outcome that protects all Wachovia creditors, including depositors, insured and uninsured, and promotes market stability,” the Fed and OCC said.

The central bank regulates bank holding companies, and the OCC is the primary regulator for the banking units of Wachovia, Citi and Wells Fargo.

The FDIC, which insures bank deposits, has tried to match potentially failing banks with buyers in an effort to stave off harm to the deposit insurance fund, which stood at about $45 billion three months ago.

“The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest,” Bair said.

In either case, all banking customers of the merged institutions would be fully covered with no disruptions in service, Bair said.

(Additional reporting by Dan Wilchins in New York; editing by Gerald E. McCormick/Jeffrey Benkoe)

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