It's showdown time! The courtroom ceasefire between Citigroup Inc. and Wells Fargo & Co. in the battle over Wachovia Corp. expires at high noon (
actually, 8am on Friday). It's a bit too late for Citigroup to back down gracefully, but can it win out with its reputation in tact?
In what seems almost like a last-minute desperate attempt to make the
deal happen, Citigroup is apparently reaching out to potential
partners to join its bid for Wachovia, according to a report in
The Wall Street Journal.
There are also reports that Wachovia could get ripped apart, with Wells
Fargo likely to get about 75% to 80% of
Wachovia's deposits, while Citigroup receives the rest. Are the odds pretty much
stacked against Citigroup? Who would join them?
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Media reports seem to cast Wells Fargo as the
slick gun-slinging hero in the white cowboy hat, thanks in part to its shareholder-friendly last-minute $15.1
billion bid (trumping Citigroup's paltry $2.16 billion offer) for the Charlotte, N.C.-based bank. It also helps that Wells Fargo's offer promises to save the taxpayers and the FDIC from bailing out
yet another bank through a quick-fix transaction.
Granted,
it's not the best time to be in the banking industry, and by no means
is Citigroup the bad guy in this Western, but could it be a casualty if
it loses the showdown for Wachovia?
CEO Vikram Pandit, who has been under
pressure to restructure Citigroup and free up capital, has been
counting on the purchase of Wachovia's banking operations to help
rebuild Citi after three quarters of losses tied to the global credit
crunch. Wachovia's deposits would have taken some weight off of Pandit's
shoulders. In Citi's initial deal, the
FDIC committed to cover up to $258 billion in losses Citi could face as
part of acquiring Wachovia. Under an unorthodox agreement designed to
avoid an up-front hit to the deposit insurance fund, the FDIC pledged
to protect Citi from losses on a $312 billion pool of specific
mortgages and other assets that would be acquired from Wachovia.
While
that was a good deal for Citigroup, it appeared that, compared to the
Wells Fargo deal, everyone (shareholders, the FDIC and the taxpayers)
lost out. Plus, along with the acquisition of Wachovia, Citigroup has
been shrinking, selling off branches and increasing layoffs to shore up
capital. Wednesday,
Citigroup announced the sale of Citigroup Global Services,
the India back-office unit, for about $505 million in cash. Citi is also
cutting 500 jobs and reducing by 90% the number of independent
mortgage brokers it does business with, according to Bloomberg.
Citi will cut the number of independent brokers to 1,000 from about
9,500, while the 500 job cuts, mostly sales and support positions,
represent about 5% of the company's mortgage operations across
the U.S. Those announcements are not going to win the bank
any brownie points.
It
will be interesting to see which bank rides into the sunset with
Wachovia. It will be even more interesting to see how the deal plays
out in the long term. May the best bank win.
- Maria WoehrSee Dealscape: Celent's Bart Narter on the Wachovia tug-o-war
