Wachovia-Citigroup-Wells Fargo–Patriotism

By Stormy

The Wachovia-Citigroup-Wells Fargo flap makes one wonder. Wachovia is about to go under; the FDIC arranges for Citigroup to buy Wachovia for 2.2 billion, while absorbing 42 billion of losses Citigroup will presumably incur.. Along comes Wells Fargo, offering Wachovia 15 billion.

Exploiting a presumed tax loophole, Wells Fargo makes a significantly better offer.

While it is true that there is a letter of exclusivity in the FDIC brokered deal, I am not interested in its legality or its force.

First, that tax loophole must be significantly large in order to make up the difference between the two offers. Citigroup’s offer is effectively 44.2 billion (2.2 billion plus the FDIC’s coverage of 42 billion in losses.) Subtracting the 15 billion Wells Fargo offer, we arrive at a tax loophole of certainly more than 29.2 billion.

I am certainly no expert in mergers and acquisitions, but I bet that Citigroup was well aware of that loophole and wanted to exploit it as well. In short, the FDIC had offered a real plum to Citigroup. That Citigroup may now be willing to risk a very expensive lawsuit in order have that plum speaks volumes. (While the letter of exclusivity mentions “irreparable harm,” how much harm could have been done in such a short period of time, especially when the deal had not finally been consummated.)

Additionally, if the FDIC is going to broker deals, shouldn’t it be aware of all the side-benefits? Or better yet, shouldn’t it slow down a bit, allowing other bidders to come forth? Or, maybe, the FDIC doesn’t work that way; doesn’t canvas all potential buyers. To be somewhat circumspect, maybe the FDIC uses the “personal” touch.

Finally, I just have to wonder about the last sentence in the final paragraph covering the story in today’s New York Times piece:

The litigation could put regulators in a tough spot. The Wells Fargo deal may be better for taxpayers, but if it succeeds, in the future other financial institutions may not be willing to help the government, as Citigroup did, because of the risk that they might not reap the anticipated benefit.

Who exactly is helping whom here? Why will other companies be “unwilling to help the government”? I doubt that any of these companies are being particularly patriotic.

Maybe some more informed readers can help me out. Seriously. I am sure I must be missing something.