Reuters reports that in a ruling on Monday, U.S. District Judge Shira Scheindlin concluded that Citigroup lost an exclusive right to deal with Wachovia when the federal Emergency Economic Stabilization Act became law on October 3, the same day Wells Fargo announced its takeover of Wachovia. That law also authorized the $700-billion bank bailout fund known as the Troubled Asset Relief Program.
New York-based Citigroup abandoned its lawsuit to block the merger, but still sought damages.
On September 29 of last year, Citigroup agreed to buy much of Charlotte, N.C.-based Wachovia for $2.16 billion, with the Federal Deposit Insurance Corp. (FDIC) sharing in losses on Wachovia loans. The subsequent higher offer by San Francisco-based Wells Fargo for all of Wachovia did not require FDIC support, according to Reuters.
In its complaint, Citigroup said it would be improper to allow a non-FDIC supervised transaction such as Wells Fargo’s to interfere with an FDIC-supervised deal such as its own (see Citi to Wells Fargo: Not so Fast ).
Citigroup and Wachovia had entered an agreement barring the latter from soliciting other buyers before October 6; however Scheindlin said that the law passed October 3 was designed to address an “alarming banking crisis” and give the FDIC “full flexibility to rescue troubled banks” through a “broad range of actions.” She said this included a competitive sale of Wachovia, which had been suffering from soaring mortgage losses and billions of dollars of deposit outflows.
Wells Fargo completed its $12.5-billion takeover of Wachovia on December 31, 2008.
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