NEW YORK -
Wells Fargo & Co. and Citigroup Inc.'s dispute over their competing agreements to acquire Wachovia Corp. became a battle of dueling state and federal judges yesterday.
In a ruling Saturday, New York state Judge Charles Ramos put the Wells-Wachovia deal on hold until a hearing this Friday. He ruled over objections from Wachovia, which accepted Wells Fargo's $7-a-share offer Friday for the entire bank, brushing off Citigroup's agreement in principle earlier in the week to buy most of Wachovia's operations for $1 a share.
But Ramos' order was temporarily blocked yesterday by U.S. District Judge John Koeltl, who set a hearing on the clash tomorrow in his New York court.
In a statement yesterday before the federal judge's ruling, Wachovia indicated it would stand by the Wells Fargo deal - unless a better proposal emerged.
"Wachovia believes its agreement with Wells Fargo is proper, valid and is in the best interest of shareholders, employees and the American taxpayers," it said. "Under that agreement, Citigroup is always free to make a superior offer to Wachovia."
The dispute clouds the outcome of one of the hasty shotgun marriages imposed by the Federal Reserve and bank regulators, who say they are acting to prevent a meltdown of the U.S. financial system.
Charlotte, N.C.-based Wachovia has been socked by losses, especially on exotic mortgages. Wachovia was put up for sale just over a week ago by the Federal Deposit Insurance Corp., which feared it was on the brink of collapse. New York's Citigroup and San Francisco's Wells Fargo, coveting Wachovia's vast retail operations in the East and Southeast, were the leading suitors, checking Wachovia's books to evaluate the toxicity of its mortgages, loans to home builders and securitized commercial real estate loans.
But Wells Fargo walked away from the auction, saying it needed more time to analyze the data. Wachovia's board tentatively accepted Citigroup's offer Sept. 29, with details to be worked out and a final agreement signed later.
The pact, worth $2.2 billion to Wachovia shareholders, called for Citigroup to buy Wachovia's bank operations but not its brokerage firm, mutual funds or certain other assets.
Citigroup agreed also to assume $42 billion in losses on the bank's loans. The FDIC, in return for accepting any additional losses, was to receive $12 billion in Citigroup preferred stock and warrants to buy shares.
On Thursday, Wells Fargo returned with its all-stock offer, worth about $15 billion, which involved no exposure to losses by the government and would have maintained the tight relationships between the various parts of Wachovia.
Citigroup said the offer was prohibited under an exclusivity pact that Wachovia had signed.