Zazzle Shop

Screen printing

Monday, October 6, 2008

Citigroup seeks $60 Billion in suit over Busted Wachovia Deal

Citigroup Inc.'s lawsuit against Wachovia Corp., Wells Fargo & Co. and their directors is seeking at least $60 billion.

Citi had reached an agreement in principle last Monday to buy Wachovia's banking operations for $2.16 billion, but Wells Fargo swooped in and announced early Friday a $15.1 billion deal to buy all of Wachovia. Citi immediately cried foul, prompting Saturday's suit.

[NEW YORK - JULY 22:  (FILE PHOTO) Pedestrians walk past a Wachovia bank July 22, 2008 in New York City. It has been announced on October 3, 2008 that Wells Fargo will take over the Wachovia Corporation in a deal worth over USD 15billion.  (Photo by Chris Hondros/Getty Images)] Getty Images

Pedestrians walk past a Wachovia bank in New York.

The company is seeking more than $20 billion in compensatory and over $40 billion in punitive damages from Wells Fargo for tortious interference with Citigroup's deal with Wachovia. Citigroup is also seeking undisclosed "relief" from Wachovia for breaking their deal.

Legal wrangling over the weekend prompted officials from the Federal Reserve to push for Citigroup and Wells Fargo to reach a compromise, one in which could result in the two carving up Wachovia, people familiar with the situation told The Wall Street Journal.

The New York legal fight resolves around the validity of an "exclusivity agreement" Wachovia signed when it reached its deal with Citigroup. A lower-court judge Saturday extended the expiration to Friday from Monday, but an appeals court on Sunday overruled that decision.

Without some sort of compromise, the fate of Wachovia could drag out for weeks or months in a legal battle that leaves the battered bank in limbo, distracted by controversy and further weakened by the mountain of bad loans that led to its government-engineered deal with Citigroup last week.

Citi shares were recently down 11% at $16.30 while Wachovia fell 9.7% to $5.61 and Wells Fargo dropped 3.7% to $33.25.

The lawsuit was filed Saturday at the Supreme Court of the State of New York in New York County. Citigroup released a copy of the suit Monday along with a statement in which the New York company said it "remains willing to enter into an agreement with Wachovia which Citi believes would deliver powerful capabilities of the two entities to their respective stakeholders."

According to the lawsuit, had Citigroup not reached its $2.1 billion deal with Wachovia on Sept. 29, the Charlotte, N.C., bank "would have failed the following day and the debt issued by its holding company would have collapsed, with potentially devastating implications for the stability and security off the financial markets."

Citigroup also alleges in the suit that the Wells Fargo deal "triggered the golden parachutes of Wachovia CEO Robert Steel and its other senior executives," enabling the executives to "bestow upon themselves a $225 million windfall."

A Wachovia spokeswoman said Monday that the company hadn't received the lawsuit.

In an email to Wachovia employees, Mr. Steel said the bank's agreement with Wells Fargo, of San Francisco, "is proper and valid. The agreement is in the best interests of shareholders, employees, creditors and retirees, as well as the American taxpayers, which is why our board of directors approved it."

The ongoing legal wrangling is "a fact of business life when interested parties disagree," Mr. Steel added.