Fool Poll: The Fight for Wachovia

When Citigroup (NYSE: C  ) made a run for Wachovia (NYSE: WB  ) earlier in the week, it wasn't the only bank interested in picking up the pieces of banking's latest victim. Wells Fargo (NYSE: WFC  ) had also shown interest, and this morning we're seeing how much fight it had left in it.

To be exact, seven times the fight Citigroup had.

This past month has been stuffed with more bewildering news than most comic books contain, so I guess this shouldn't come as much of a surprise: Wells Fargo made an out-of-the-blue all-stock bid for Wachovia at $7 per share -- seven times the measly buck Citi offered earlier in the week. Citigroup isn't too happy about the sneaky bid, and is considering a lawsuit against both Wachovia and Wells Fargo, and could come out with a sweetened offer. Let the battle begin!

This seems a little like JPMorgan Chase's (NYSE: JPM  ) original $2-per-share offer for Bear Stearns, only to come back later saying "$2 not enough? How about $10? It's a steal either way. Whatever ..."

Admittedly, comparing Citi's and Wells' offers isn't really apples-to-apples; Wells Fargo is buying the whole shebang, while Citi left Wachovia shareholders a few scraps, such as the brokerage and asset management business, where Citi's already strong.

What this means for the market
Wells' bid for Wachovia can be seen as a big step in the right direction, seeing how it:

  • Doesn't need a government backstop to purchase the company, as Citi needed. Free markets came out ahead, for once.
  • Offers shareholders what they deserve, acknowledging there's still some value left in the company, not just a token $1-per-share offer.
  • Reminds the market that the private sector isn't dead -- when bargains arise, there are still some takers.

That's likely a good part of why the market's on a roll this morning, even though a host of other negative factors like job losses should have soured the mood. The financial system has been completely devoid of confidence lately (for good reason), worrying about the fate of the $700 billion plan.

For a few lucky banks like Wachovia, help comes early, but Wells' bid certainty doesn't turn the tide on the bailout front enough to make Hank Paulson surrender. There're plenty of banks out there -- from small banks like National City (NYSE: NCC  ) and Fifth Third (Nasdaq: FITB  ) to behemoths like Bank of America (NYSE: BAC  ) and, yes, Citigroup, that are either not interesting enough or too big to be acquired or bailed out by anyone short of Uncle Sam himself. Despite this morning's news, bailout talk should remain alive and well.

What do you think about Wachovia's future? All options could be on the table, with a bidding war, fallout, or bailout, taking shape in the coming weeks. Take a moment to weigh in via our Fool Poll below.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 03, 2008, at 3:43 PM, RaulChapin wrote:

    This is one simple way to show how the whole end of the world house of mirrors with which they tried to fool Main Street is just a huge invention.

    Wells Fargo just proved that the big banks could buy a lot of the left overs from the failure of overextended banks, WITHOUT government help.

    However business men that they are, it makes A LOT more sense to buy at $1 per share WITH the help of the government than it does to buy at $7 on your own... thus you cry and you cry until a) there is no bailout, time at which you pull out your wallet and pay cash or b) there is a bailout and you take a free ride on the chumps who believed you.

    anyway, no sense in arguing any more over this. The bailout has passed, what America does with the borrow time, will determine how soon the next bailout comes...

  • Report this Comment On October 03, 2008, at 6:15 PM, McMomCPA wrote:

    CNBC had WFC's Chairman Dick Kovacevich on this afternoon before market close and he said that the only signed merger agreement is the one between WFC and WB. Their Media Information page on their website states "Wells Fargo & Company (NYSE:WFC) and Wachovia Corporation (NYSE:WB) said today they have signed a definitive agreement for the merger of the two companies."

    Citigroup is refuting this, saying they had an "exclusivity pact," and is threatening a lawsuit.

    Can anyone find the truth on this one?

    Is there anyone checking into whether the person at the FDIC that tried to arrange Citigroup's $1 a share price would get any financial benefit?

  • Report this Comment On October 04, 2008, at 12:56 AM, Melegaunt wrote:

    While I dont have alot of insider knowledge what I do know is this.

    FDIC is required by law to back the deal that provides the least financial harm to tax payers. Which is Wells Fargo's Deal.

    So while Citi's deal may of had some minor exclusivity rights, it needed the FDIC to be compelted. Which by law cannot do.

    Without the FDIC backing Citi's deal is null allowing WFC to have a legitimate bid.

    Citi will claim this exclusive right but the truth of the matter is that the talks between WFC and WB have been going on for four months. Long before Citi and WB have agreed. It may be grandfathered and dated prior so that thier rights do not apply.

    Either way WFC will win out on this. It is better for the economy, it is risk free for the FDIC, it provides more value and security to WB stock holders, requires no help from government aid, and offers 0.1991 WFC shares for each WB share (worth approx: 7.0001 dollars or so) which is a drastic increase (2.1 billion vs 15.1 billion)

    Unless Citi plans on beating the deal of 15.1 billion and also not taking any help from FDIC, I dont see them winning out either way.

    I look forward to the aquisition. I work for WFC and it will allow alot of growth within the company.

  • Report this Comment On October 04, 2008, at 1:30 AM, toolzfoolz wrote:

    I do think that Citibank will fight for Wachovia, but I hope that Wells Fargo gets it, as I believe they are a much more stable bank at the moment and have a better outlook than Citibank right now, and have better management to handle the acquistion, and better business practices. I will miss Wachovia, it was a good bank.

  • Report this Comment On October 04, 2008, at 1:07 PM, mknsen wrote:

    Yeah, if I do a deal and then finds out a better deal could have been done a couple of days later, I can just go back on my words....

    Maybe that's true in love and war, but not in business.

    The original agreement should be honored.

  • Report this Comment On October 04, 2008, at 4:43 PM, Melegaunt wrote:

    To mknsen:

    While I agree to an extent about sticking to what you say your going to do. The FDIC is required by law to pick the offer that will cost the least for the tax payers. Making them forced to agree with WFC. If FDIC is no longer supporting Citi then their deal can no longer go through.

    Citi will have to beat WFC 15.1 billion offer and not use FDIC to win this battle.

  • Report this Comment On October 05, 2008, at 1:47 PM, mboise wrote:

    Raul wrote

    "Wells Fargo just proved that the big banks could buy a lot of the left overs from the failure of overextended banks, WITHOUT government help."

    This is untrue.

    I call the IRS changing its rules on Tuesday of last week a lot of help: see http://www.bloomberg.com/apps/news?pid=20601087&sid=ahky...

    Excerpts

    "Wells Fargo, whose biggest shareholder is billionaire Warren Buffett's Berkshire Hathaway Inc., may have been helped in its bid by the issuance of an IRS notice Tuesday that makes Wachovia's loan losses more valuable as tax deductions. "

    ``The pronouncement, in effect, allows Wells Fargo to deduct, without limitation, the loan losses and bad debt deductions that Wachovia sustains following the acquisition,'' said Robert Willens, a certified public accountant who analyzes how accounting and tax rules affect Wall Street. That's a change from more stringent limits, he said.

    ``It's possible that the cost of the deal to Wells will be entirely offset with tax savings resulting from the relaxation of this rule.''

    Buffett said in an interview with CNBC that tax law changes had made the deal more attractive. ``Wachovia shareholders will get a lot more money,'' Buffett, 78, said.

    So, my point is there was a reason the IRS issued the notice on Tuesday. - An it amounts to a little noticed but HUGE government intervention, if you believe Warren Buffet....

    There is always news behind the news.

    Regards,

    MBoise

  • Report this Comment On October 06, 2008, at 5:04 AM, motleyfooljohn75 wrote:

    I have to agreed with MBoise.

    This is NOT right. and I believe that as a biggest shareholder of WFC, Buffett has a hand in this WFC to Wachovia deal.

    Buffett has lost my respect from this moment on.

    Buffett is just a code blood, greedy business man.

    He has never been a "Sage" , and can't claim to be one anymore.

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