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Citi-Wachovia deal off, lawsuits stand
Posted 10/10/2008 by Alison Frankel
Citibank has announced that it is ending negotiations with Wells Fargo to divide the assets of Wachovia. The announcement was made roughly 15 hours before a litigation standstill agreement among the banks was set to expire.
According to the Wall Street Journal, Citi came to believe that Wells Fargo negotiators would not budge from their $7 a share offer for Wachovia, despite Citi's conviction that Wachovia's books were so polluted with bad real estate loans that Wells could not afford that price. Citi broke the news at 5pm on Thursday (9 October) with a press release announcing its decision, which it also faxed to the various judges overseeing pieces of the litigation between the banks. Wachovia and Wells Fargo learned of the decision along with everybody else.
The litigation, Citi said, will continue. Though Citi said it would no longer seek an injunction to block the Wells/Wachovia deal, it will continue to pursue the $60bn (£35.5bn) in damages claims it laid out in the New York state supreme court complaint Citi's lawyers filed on Monday.
"Citi believes that it has strong legal claims against Wachovia, Wells Fargo and their officers, directors, advisers and others for breach of contract and for tortious interference with contract," the release said. "Citi plans to pursue these damage claims vigorously on behalf of its shareholders."
The bank's decision to pursue its claims is a matter of principal, according to an account in the Financial Times of a Tuesday town hall meeting presided over by Citi CEO Vikram Pandit. At the behest of regulators, Pandit explained, Citi stepped in to rescue Wachovia when no other bank would.
Certainly Citi deserves a breakup fee, the New York Times' Dealbook concedes. But Dealbook also argues, citing the Breakingviews blog, that the $60bn lawsuit is not so great for Citi's image.
This article first appeared on The Am Law Daily, the website of The American Lawyer, Legal Week's US sister title.