NEW YORK — Citigroup said at the weekend that a New York state court judge had granted an order extending the bank’s “exclusivity agreement” with Wachovia, after Wells Fargo announced a competing bid on Friday.
New York State Supreme Court Judge Charles Ramos issued the emergency injunction on Saturday night, protracting Citigroup’s agreement to negotiate the acquisition of parts of Wachovia, based in Charlotte, North Carolina, “until further order of the court”, Citigroup said.
That accord was set to expire today. The two banks are required to appear before Ramos on Friday, according to Citigroup.
Hobbled by $61bn of losses stemming from the collapse of the mortgage market and ensuing credit contraction, Citigroup is in the midst of a takeover battle with Well Fargo for control of Wachovia.
A spokeswoman for Wells Fargo did not immediately reply to requests for comment after Citigroup announced the court order.
“Wachovia believes its agreement with Wells Fargo is proper, valid and is in the best interest of shareholders, employees and the America taxpayers,” said Christy Phillips Brown, a Wachovia spokeswoman.
“Under that agreement, Citigroup is always free to make a superior offer to Wachovia.”
Citigroup was seeking $60bn in damages from Wells Fargo in connection with the proposed deal, the New York Times reported, citing a person briefed on the situation.
Citigroup shares fell as much as 21% on Friday in New York trading after Wells Fargo, the biggest US bank on the US west coast, agreed to buy all of Wachovia for $15,1bn.
The bid trumped Citigroup’s government-backed offer of $2,16 for Wachovia’s banking operations. “The taxpayer doesn’t pay a penny” for the Wells Fargo deal, Wells Fargo chairman Richard Kovacevich said on Friday.
Also, his company’s bid was superior to Citigroup’s because it was a higher price and the combining banks “share similar cultures and values”.
Citigroup CEO Vikram Pandit is counting on the Wachovia purchase to help rebuild after three quarters of losses totalling more than $17bn.
The bank’s market value has dropped 38% this year to about $100bn, leaving it below Wells Fargo. If Wells Fargo winds up with Wachovia, it would creep up on its New York rival with deposits of $787bn, compared with Citigroup’s $826bn.
Pandit insisted Citigroup would prevail, citing the exclusive agreement signed by Wachovia. Kovacevich told investors during a conference call that the deal with Wachovia was “solid”.
Citigroup stock dropped 18% to $18,35 on Friday in New York composite trading, after its biggest decline in 20 years. Wachovia shares rose 59% to $6,21. Wells Fargo stock declined 1,7% to $34,56.
Buying Wachovia would give Citigroup the third-biggest US bank network and cement its status as the country’s largest lender by assets.
Citigroup demanded that Wells Fargo abandon the takeover.
“Any such agreement between Wachovia and Wells Fargo is illegal,” Pandit said on Friday. “We continue to vigorously pursue Citigroup’s interest and rights in completing this transaction.”
Citigroup might increase its offer, said a person with knowledge of the deliberations.
“I’m still not convinced that Citigroup can force this sale to happen,” said Elizabeth Nowicki, a professor at Tulane University Law School in New Orleans and a former mergers and acquisitions lawyer at Sullivan & Cromwell. “Citigroup may be facing the chance to get themselves a small settlement, and that’s a nice shot in the arm for a company that’s struggling.”
The Federal Deposit Insurance Corporation helped broker Citigroup’s purchase when Wachovia’s health faltered. Chairman Sheila Bair said until a review of Wells Fargo’s offer was completed, the agency would stand behind the Citigroup deal.
“We wanted to make clear that until things are settled with what’s going on with this Wells bid, that the Citi deal was still there,” Bair said on Friday. The corporation was reviewing the offer, and she had told Hunt he should not assume the US opposed Wells Fargo’s offer.
Other bank regulators said they had not evaluated Wells Fargo’s offer.
“We have not yet reviewed the new Wells Fargo proposal and the issues that it raises,” the Federal Reserve and office of the comptroller of the currency said on Friday.
“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.”