Citigroup and Wells Fargo decided jointly with the Federal Reserve to respect a truce until Wednesday noon concerning a lawsuit about the takeover of troubled bank Wachovia.
In the face of an escalating court battle over troubled bank Wachovia, suitors Wells Fargo and Citigroup agreed Monday to a two-day "standstill" on litigation actions.
A joint statement from the three banks came as the fate of Wachovia was in limbo following its deal to be acquired by Wells Fargo and a Citigroup lawsuit seeking 60 billion dollars from the two firms.
The three banks said they had reached a decision "in consultation with the Federal Reserve," to a "standstill of all formal litigation activity effective immediately."
They said they would "cooperate in good faith ... with the goal of preserving the status quo during the litigation standstill period."
This standstill agreement will terminate at noon (1600 GMT) on Wednesday unless otherwise extended.
It was not immediately clear the reason for the agreement, but some reports said US regulators were trying to broker a deal to carve out portions of Wachovia for the other two banks to avert a protracted legal battle amid a deepening financial crisis.
Analysts said they expected a negotiated settlement to the dispute after a court ruling over the weekend blocked the Wells Fargo acquisition, and then was overturned on appeal.
"It appeared that the government was trying to quickly broker some sort of compromise whereby Wachovia's branches would be divided up geographically between the two bidders," said Joe Morford at RBC Capital Markets.
"Ultimately we believe it will be hard for the regulators to not approve the deal, given that Wells Fargo's offer does not require any (government) assistance and thus removes the taxpayer from any future loss exposure."
Citi on Monday released details of its lawsuit seeking 60 billion dollars in damages from the two firms and their boards of directors, including 40 billion in punitive damages.
"Citi is seeking relief from Wachovia for its bad-faith breach of that contract," the banking giant said.
"This was always a deal Citi wanted rather than one we needed. We were and remain very excited about this transaction and how it will benefit the clients and shareholders of Citi and Wachovia, as well as help preserve the stability of the financial system. The Citi/Wachovia transaction would have been signed and announced on Friday, October 3 if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors."
An injunction had been granted by the New York State Supreme Court to Citigroup, late Saturday, which claimed Wachovia illegally backed out of a merger agreement and that Wells Fargo interfered with its exclusivity.
The state's appellate court overturned that, drawing praise from Wells Fargo and Wachovia.
"We are pleased that the unfounded order entered yesterday has been vacated," Wells Fargo said late Sunday. "Wells Fargo will continue working toward the completion of its firm, binding merger agreement with Wachovia Corporation."
Wachovia said in its own statement that it "continues to believe its agreement with Wells Fargo, which involves no government assistance, is proper and valid."
After agreeing to a US government-backed deal forged last Sunday with Citi, Wachovia reversed course and announced Friday its preference for Wells Fargo.
Amid a global market rout, Wachovia shares slid 6.9 percent to 5.78 dollars on Monday. Citigroup fell 5.2 percent to 17.41 and Wells Fargo traded down 2.66 percent at 33.64.
Wachovia had been in danger of failure after its shares lost more than 70 percent of their value in a year, as investors feared a panic run on the beleaguered institution.
The battle for Wachovia is part of the great redrawing of the US financial landscape as commercial and investment banks go bust or seek takeovers because of losses linked to the subprime housing market.
The planned acquisition by Wells Fargo, which traces its roots to the Wild West and the Gold Rush of the 19th century, would give it the biggest network of branches in the United States.
Wells Fargo offered 15.1 billion dollars in an all-stock deal to buy all of Wachovia and it stressed that its proposal did not have any government involvement or taxpayer risk.
Citigroup offered to pay 2.16 billion dollars in stock for Wachovia's banking activities and some of its debts.
Date created : 2008-10-07