Page last updated at 16:09 GMT, Friday, 3 October 2008 17:09 UK

Battle to buy Wachovia heats up

Wachovia sign
Citigroup and Wells Fargo both want to buy Wachovia

The battle for troubled US bank Wachovia has heated up with two rival suitors now competing for the firm.

Wells Fargo has announced it is set to buy Wachovia for $15.1bn (8.5bn).

This scuppered an earlier US government-backed rescue deal in which Citigroup would buy Wachovia's banking arm for $2.2bn.

Citigroup has now objected, saying the new agreement breached its exclusive acquisition rights and has demanded that it be called off.

Exclusive agreement

But a few days later it was courted by another suitor Wells Fargo.

Wachovia's agreement with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia
Citigroup statement

Wells offered to buy all of Wachovia for much more money, and so Wachovia walked away from its agreement with Citi.

This has clearly angered Citigroup, which said it had nearly completed its own deal with Wachovia.

This would have been overseen by the Federal Deposit Insurance Corporation (FDIC), and would have included government help.

"Wachovia's agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia," Citigroup said in a statement.

The fight for Wachovia has come amid a crisis that has seen investment bank Lehman Brothers go bust, and the failure of giant mortgage lender Washington Mutual.

Financial difficulties

Cassandra Toroian, chief investment officer at Bell Rock Capital added: "For Citigroup, this is a real loss...this was a deal that was going to save them as much as it was saving Wachovia."

This deal enables us to keep Wachovia intact and preserve the value of an integrated company.
Robert Steel
Wachovia chief executive

Wachovia's financial difficulties stemmed from its 2006 purchase of mortgage lender Golden West for $25bn at the height of the then US housing boom, according to analysts.

Wachovia's chief executive, Robert Steel, said: "Today's announcement creates one of the strongest financial firms in the world."

"This deal enables us to keep Wachovia intact and preserve the value of an integrated company," he said.

Shareholder questions

Wells Fargo said it expected its earnings to benefit from the new agreement within a year, but some question the attraction of the deal for Wells' shareholders.

Nancy Bush, analyst at Nab research said: "I think it's a more elegant solution for Wachovia shareholders."

But she added: "If I were a Wells Fargo shareholder...I wouldn't be so happy. Wells is going to have to go to the capital markets at a time when it's not so easy to raise capital."

The deal still has to be approved by shareholders.




MARKET DATA - 11:36 UK

FTSE 100
5429.64up
23.70 0.44%
Dax
5733.05up
19.54 0.34%
Cac 40
3784.02up
14.48 0.38%
Dow Jones
10403.79up
78.53 0.76%
Nasdaq
2273.57up
35.31 1.58%
BBC Global 30
5707.15up
20.65 0.36%
Data delayed by at least 15 minutes


RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites


FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC navigation

BBC © 2013 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific