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Citi wins court order in battle for Wachovia

(Agencies)
Updated: 2008-10-05 14:56

NEW YORK - Citigroup Inc said it won a court order late on Saturday blocking Wells Fargo & Co. from buying hobbled US bank Wachovia Corp until the court rules otherwise.

Citigroup, which planned to buy Wachovia's banking assets for $2.2 billion, said New York State Supreme Court Justice Charles Ramos granted an injunction extending Wachovia's agreement to negotiate exclusively with Citigroup. The two banks are slated to appear before the judge on Friday October 10.

Citigroup and Wells Fargo are battling for control of the sixth-largest US bank Wachovia, which has been hit hard by bad mortgages but has a large network of branches. The global credit crunch is forcing weaker banks to sell themselves, sometimes at the urging of the US government.

Citigroup, the largest US bank, said on Monday it had preliminarily agreed to buy Wachovia's banking operations in a government-backed deal. That deal did not include a signed merger agreement, but Wachovia did sign an agreement to only negotiate with Citigroup through Monday October 6.

On Friday, Wells Fargo said it had signed an agreement to buy the whole of Wachovia, including its asset management unit and retail brokerage, for about $15 billion.

Some lawyers believe that Citigroup could have a real case, noting the exclusivity agreement and the fact that Citigroup provided financial support to Wachovia last week.

"Those are clearly strong facts on Citi's side," said Morton Pierce, chairman of the mergers and acquisition group at law firm Dewey & LeBoeuf, on Friday. Dewey & LeBoeuf is not representing any of the parties in the transaction.

Wells Fargo Chairman Dick Kovacevich said Friday "We're confident that this deal goes through."

"We get sued all the time, and many times the suits are meritless," Kovacevich said, adding that the company's lawyers were still reviewing the relevant documents. Spokeswomen for Wells Fargo and Wachovia could not immediately be reached for comment late on Saturday.

Government Help

Citigroup, which has sustained about $60 billion of writedowns and losses during the credit crunch, planned to buy Wachovia's banking assets with US help, including partial government guarantees on a $312 billion Wachovia loan book.

The deal is important for Citigroup Chief Executive Vikram Pandit, who is looking to turn around the ailing bank in part by focusing on stable businesses such as consumer banking.

Wells Fargo, the seventh largest US bank by assets, has managed to remain consistently profitable during the credit crunch. Its bid would not require government backing.

Regulators said on Friday they had not looked at the Wells Fargo bid.

Under that bid, for each share of Wachovia, investors would receive 0.1991 of a Wells Fargo share, which is equal to $6.88 a share based on Wells Fargo's closing price on Friday of $34.56.

US banks have been scrambling to build or buy branches, which allow them to raise money from depositors. In a credit crunch, deposit funding can be cheap compared to borrowing in bond markets.

Winning the Wachovia branches would help Citi bolster its relatively weak network of US  branches, which number about 1,000 compared with Wachovia's 3,300 and Wells Fargo's 3,400.

Wachovia is the latest casualty of a crisis that has led to shotgun sales of Bear Stearns Cos and Merrill Lynch & Co Inc, the near collapse of American International Group Inc, and the bankruptcies of Lehman Brothers Holdings Inc and Washington Mutual Inc.