Battle for Wachovia: NY Supreme Court steps in

Battle lines are being drawn in the Wells Fargo-Citigroup fight over Wachovia. On one side is Citigroup and their ally the government. The New York State Supreme Court ordered a temporary block on a sale between Wells Fargo and Wachovia until details on Citigroup’s claims can be sorted out. Citigroup, which has offered $2.1 billion for the banking operations of Wachovia, says it has the exclusive right to negotiate a final agreement. The FDIC, who brokered the initial agreement and has offered $42 billion in assistance, says it “stands behind its previously announced agreement with Citigroup.” It also said it would review proposals from both sides and work with all three companies to resolve the dispute. To the other side is Wells Fargo and Wachovia itself. Wells Fargo has offered $14.8 billion for Wachovia, a substantially larger amount, that takes all of Wachovia and not just their banking operations. Wells Fargo says its deal is better because it is larger and doesn’t count on Federal financial assistance (aka tax payer dollars). Wachovia agrees. Their spokeswoman Christy Phillips-Brown said in a statement Wachovia believes its agreement with Wells Fargo is “proper, valid and… in the best interest of shareholders, employees and the American taxpayers.” With New York state stepping into halt the proceedings, it sets up a showdown between two of the largest financial firms left in America’s banking world. Citigroup’s formal litigation will complicate the financial credit crisis and future agreements the federal government tries to arrange between banking institutions. Ultimately, the two solvent organizations may agree to split up Wachovia, though that deal would still involve federal money (read “taxpayer money”).