It was clear from documents filed in federal court Sunday that Wachovia was in considerable trouble when it agreed to the deal. Wachovia disclosed that it agreed to the deal "with the understanding that a seizure of its banking assets later that day by the Federal Deposit Insurance Corp. would occur" unless it accepted Citigroup's proposal.
Four days later, San Francisco-based Wells Fargo & Co. stunned Citigroup by announcing that Wachovia's board had agreed to its $14.8 billion all-stock offer. Originally, the deal was valued at $15.1 billion, or $7 a share, but Wells Fargo stock declined after it was announced.
Wells Fargo also said it would need no FDIC assistance to complete the takeover, which would be aided by a new IRS rule designed to make it easier for banks to offset losses from loans and other bad debts held by other banks they acquire.
According to an affidavit filed by Robert Steel, Wachovia's president and chief executive in federal court Sunday, he was approached by FDIC Chairman Sheila Bair late Thursday; Bair told him that Wells Fargo was prepared to propose a merger transaction "and encouraged me to give serious consideration to that offer."
One of Wachovia's attorneys then advised Bair that unless Wachovia had a signed and board-approved merger agreement from Wells Fargo, it could not consider the proposal, the affidavit said.
The FDIC said Friday it "stands behind its previously announced agreement with Citigroup." It also said it would review all proposals and work with all three institutions to resolve the tug-of-war. An FDIC spokesman did not return calls for comment on Sunday.
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