The Citi Exclusivity Agreement

by: Felix Salmon October 03, 2008 | about stocks: C / WB / WFC    
Felix Salmon

Felix Salmon

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Here is the exclusivity agreement upon which Citigroup (C) is placing so many of its hopes; it was signed by executives from both Citi and Wachovia (WB). If it holds up in court, Citi might just be able to walk away with Wachovia. But I think that Citi's best hope of derailing the Wells Fargo-Wachovia deal would be if Citi can persuade the regulators not to approve it. After all, as of right now, the Citi-Wachovia deal has regulatory approval; the Wells Fargo (WFC) deal doesn't.

Citi will also attempt to fight a public-relations war related to executive compensation: Because Wells Fargo is buying all of Wachovia, rather than just the banking operations, it's going to trigger the change-of-control provisions in Wachovia's employment agreements. That could, in turn, mean $250 million going to Wachovia's senior management, at a time when politicians on both sides of the aisle are railing against exactly those kind of pay packets.

The exclusivity agreement does say what Citi says it says; the question, of course, is how enforceable it is. If it is enforceable, Wachovia might be forced to go through with the Citi deal. But the history of the credit crunch so far would seem to indicate that agreements on paper aren't worth very much. And with Citi's stock down 14% today even with the TARP going through, the market would seem to agree.

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This article has 12 comments:

  •  
    Oct 03 03:44 PM
    The Citi agreement gives FDIC $ 12 bil. in warrants. The WFC agreement gives nothing.

    Why should FDIC give up the $ 12 Bil. that it badly needs to cover future Bank Failures?
    Reply | Link to Comment
  •  
    Oct 03 03:46 PM
    My feeling is, "It usually isn't good to countermand the FDIC if you are a major bank under it's auspices."
    If WFC is willing to front the consequences of a greater failure, they should go right ahead:
    1. Self-ensure their own deposits.
    2. Repay the mega billions of dollars they currently have borrowed from the Feds.

    I feel that any member of Congress who leaves this forum and seeks re-election should be fired (not-voted for). There was much PORK in the kettle which, once voted for should be immediately repealed. For example, should our Gov spend our money on exporting American Jobs to Samoa, or should they spend the money on us? (Do not even ask regarding my opinion of Bombs vs Americans, which appears to
    be the current direction!)

    I suggest you ask anyone who leaves to campaign to please explain how they left our government with the following provisions still in place and where they feel they find any money is left to help the American People:

    Peace,

    JT

    "Certain wooden arrows designed for use by children" (Sec 503) [11]
    Wool research (Sec. 325)
    Film and television productions (Sec. 502)
    Litigants in the 1989 Exxon-Valdez oil spill (Sec. 504)
    Virgin Island and Puerto Rican rum (Section 308)
    American Samoa (Sec. 309)
    Mine rescue teams (Sec. 310)
    Mine safety equipment (Sec. 311)
    Domestic production activities in Puerto Rico (Sec. 312)
    Indian tribes (Sec. 314, 315)
    Railroads (Sec. 316)
    Auto racing tracks (317)
    District of Columbia (Sec. 322)

    Reply | Link to Comment
  •  
    Oct 03 03:57 PM
    was the agreement signed by Wachovia execs? and if so, do the Wachovia exec had the authority to do so? Does the agreement require a shareholders vote?
    Reply | Link to Comment
  •  
    Oct 03 03:58 PM
    now that the bail out plan has come out Wachovia needs to sell all its 122 billion if not more toxic asset loans at break even prices to all the govenment agencies possible like Fanni, Freddie, and the FED treasury as soon as possible without even loosing a second, it should be the first in line!
    Reply | Link to Comment
  •  
    Oct 03 04:01 PM
    The Wells deal is simply better for all parties, Wachovia Employees, Shareholders, the City of Charlotte and the long term stability of Wells Fargo giving them a national presence coast to coast. The only group that it hurts are Citi Shareholders. Removing the Gov't from the equation and getting a large bank to take on the debt and make it work in the long run is the free market environment that has made this country what it is. Citi should do what is best for the country and step aside or outbid Wells Fargo without the Gov't bailing them out.
    Reply | Link to Comment
  •  
    Oct 03 04:08 PM
    It is pretty evident the FDIC is scared big time over the condition of C and is seeking to keep it afloat. It has lots of global business exposure and its failure would put the bailout bill on the US Treasury. All of what I speak is well known well before the financial crisis we find ourselves. When the sick takes care of the sick then the FDIC is showing us it is scraping the bottom of the barrel.
    Reply | Link to Comment
  •  
    Oct 03 05:29 PM
    I don't see how you can force a deal that's going to be voted down by WB shareholders anyway. It was pending shareholder approval and now nobody is going to vote for Citi's lousy deal. I think the Fed is doing a horrible job managing these situations. They just don't want to deal with Citi's problems later. But how do you justify raping the WB shareholders and paying tax dollars to guarantee such a lousy deal when Wells Fargo is willing to aborb it? Tell me what's honest about that Honest John?
    Reply | Link to Comment
  •  
    Oct 03 06:31 PM
    Well - I know this sounds Polyanna like, but - a large part of how the larger financial meltdown occurred was the lying and fraud which accompanied the greed and avarice. So, what do we have here?

    The Agreement seems clear to me - but I'm not an attorney. If it is how it appears to be, then Wachovia is violating its own ethical principals.
    Reply | Link to Comment
  •  
    Oct 03 06:43 PM
    sk4543

    Why should the FDIC be entitled to any warrants. They are an insurer not a corporate raider.

    The FDIC stole the equity of WB shareholders so that the FDIC wouldn't have to borrow money from the FED or increase bank assessments. And now there pissed off because they are losing their profits.
    Reply | Link to Comment
  •  
    Oct 03 06:45 PM
    The agreement between Citigroup and Wachovia is posted here:
    www.marketwatch.com/ne...

    It does not show Citigroup's signature. Though it is signed by Wachovia official, his name and Title are not shown. Assuming Wachovia received the agreement with Citigroup's signature, I find it a clear violation by Wachovia and Wells Fargo officials to negotiate and sign a deal. My feeling is the Courts will declare Wachovia and Wells Fargo deal null and void and Wells Fargo will not be allowed to take over Wachovia. The only solution is for Citigroup and Wells Fargo to explore if they can divide Wachovia assets in a mutually beneficial deal.
    Reply | Link to Comment
  •  
    Oct 06 12:20 AM
    Regardless of the signed Citi/Wachovia contract, since the FDIC didn't sign it, can they withdraw the "backing the assets charity gift to Citi" and see if Citi walks away?
    Reply | Link to Comment
  •  
    Oct 06 12:20 AM
    Regardless of the signed Citi/Wachovia contract, since the FDIC didn't sign it, can they withdraw the "backing the assets charity gift to Citi" and see if Citi walks away?
    Reply | Link to Comment
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