It appears that the New York Fed is stepping in to help decide whether Citigroup (NYSE: C) or Wells Fargo (NYSE: WFC) will end up buying Wachovia (NYSE: WB). Both banks have made offers. Citigroup says its deal came first. Wells Fargo says its deal is better for shareholders and the FDIC.
According to The Wall Street Journal, "Under the leading plan being discussed Sunday night, Citigroup and Wells Fargo would divvy up Wachovia's network of 3,346 branches along geographic lines." The FDIC would give no backing for Wachovia's assets.
The intervention by the Fed looks a bit more like the government socialism that has basically put the Fed and Treasury in charge of the banking system. In Wachovia's case it may be absolutely necessary. Maybe.
Wachovia's shares had lost 90% of their value before Citigroup made its bid. Because of the toxic assets on it books, Wachovia might have failed the way Washington Mutual did. The government would be left to help pick-up the pieces.
A long legal battle between Citigroup and Wells Fargo could leave Wachovia to fail.
But would its failure be such a bad thing? The FDIC might have to put in a huge sum to protect depositors. Then it could auction off the branch system. The toxic assets might be sold to a vulture fund with some government guarantees.
A lot of people would lose jobs, but is it the Fed's job to keep them employed? No.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
10-06-2008 @ 9:35AM
Tom said...
Let the market decide. Get the FDIC out. What is best for customers and shareholders?
10-06-2008 @ 9:48AM
Harry said...
Looks like Wachovia should go to the highest bidder (Wells Fargo) and the FDIC should step aside.
Simple, fast, clean solution...
10-06-2008 @ 9:51AM
Mort said...
This needs a fast resolution. The banking industry doesn't need further problems. Looks klike Citigroup was trying to buy on te cheap. The Wells Fargo bid is far superior.
10-06-2008 @ 10:09AM
cheryl said...
It is incredulous to believe the Feds have to be involved when the Wells Fargo deal is far superior to the "gift" Citi received last Monday. This is not the first time a company announced a merger and then changed their mind as to the acquiror. The shareholders were not considered at all in the Citi deal, and I would entertain the option as one to exercise my vote between the two rather than having the government decide. If this were in any other business sector, we would find it incredulous that the government would intervene.
10-06-2008 @ 11:45AM
bill said...
Who currently owns wachovia? I think the shareholders. If citigroup is out any costs they should be paid by the government. However that was a pretty heartless way to end your article, Mr mcintyre. I'll bet you've never been out of a job.
10-06-2008 @ 1:13PM
Hal said...
Doesn't "exclusivity" mean no one else? I agree that the shareholders would be getting screwed but investing is a risk by its very nature. The government should stay out and let the chips fall where they may. And Bill, I agree with Mr. McIntyre, and es I have been out of a job.
10-06-2008 @ 3:05PM
RKWATSON said...
Well it looks like they are fighting over Walkoveryou. That makes them the ho at the dance that everyone should want to dance with. Maybe they should spread them open for some other offers.