It has nothing to do with having funds or not. WFC and C both needed to raise capital to purchase WB. C was paying $14 bil for the banking only, WFC was paying $15 bil for everything. C was backstopped for their money. The diff was FDIC was getting 12B to backstop the losses at $42B. Citi would stick by that original deal. They took a look at the books as did WFC and both companies realized that WB is much much mich worse than either thought. This is why WB was not sitting at the table to hammer anything out. C has great precedent on their side and as I have said all along, they were in agreat position once WFC came into the picture.
C could either take their orginial deal and get the deposits they wanted or they could walk away, avoid the hassle of WB and get perhaps $10-$60B. I personally think this settles in the $10-$20B range, most likely the lower end. That will be immediate capital infusion to C bottom line and another large amount of money that WFC will need to raise.
If anything, C has shown remarkable calm in the past 24 hours. They have stuck to their guns insisting that any breakup of branches give them the northeast and middle atlantic, traditionally the nations strongest housing markets and thus least likely area of mortgage defaults. As C now knows everything on WB books for the counrty they were in a win-win situation. Either way they win.
Once this lawsuit settles, and WFC needs to move sooner rather than later, C will have gotten alot of money for the breach from WFC. They will not be taking on the risk. I am certain that WFC will rue the day they bought WB/GWF's bad book of loans with no backstop.
The unfortunate part for the US taxpayer is that the bad book of crap will be coming off WFC tax bill. In the end, the C deal at least had the FDIC getting $12B of the losses reimbursed. WFC wont be giving that back.
If you are long C, just sit and wait, time is on your side as is precedent. Remember, precedent makes law, Pennzoil had a much weaker case against Texaco and getty and they ended up with $10B in damamges in late 1980s dollars. It will be very difficult for any Judge to overturn this.
Dick Bove knows this and he cited some of the same reasons earlier this week why he is "loading up" on C.
Nice post, however, I disagree about the tax bill. It just reduces risk from WFC's point of view. I'm certain they'd rather have the cash than the write off and would work towards that. Also, Bove is the kiss of death.
I believe C has 2 lawsuits ... one against WB and another against WFC...
since they're merging with Wells and Wachovia... that's a double Whammy! They will also have to pay Wachovia's damages...
"I believe C has 2 lawsuits ... one against WB and another against WFC..."
I would generally agree with that statement but I am not privy to the complete agreement between WB and C, so who knows. What I do believe, if C is suing for $60B, it means they are trying ot get 20% of that. It's just the norm to sue for as much as possible in hopes for a good/desent settlement.
Good luck longs.
Everyone justs needs to relax regarding C. C isn't going anywhere. If they do, then every financial institution is going. Take this a good buyin opportuinity and hold for the storm to settle. IMO, after the weather has cleared C will be a survivor of this whole fiasco. Good luck longs.
No way Kovacevich pays anything close to a $1 billion. The deal won't be profitable then. The FDIC will say CITI you need our help to stay independent drop the suit you are hurting the industry at a time we can't afford that. Then the FDIC injects some much needed equity into the sickly CITI and the tax payers will own a big chunk of CITI.
1. Citi and Wachovia signed the exclusivity agreement. This is legal and binding.
2. Days later any future rules cannot apply when they did not exist when that agreement was signed!
3. This week Bof A had to agree to $8.6 Billion in penalties for it's aquisition months earlier of Coutrywide's junk. Wells will spend months deciphering the JUNK it has just purchased from Wachovia. The same JUNK that put Wachovia out of business.
4. Citi's stock fell over $4 when the BETRAYAL was made public last Friday.
5. Citi saved Wachovia and it's shareholders from complete bankruptcy by supplying liquidity and CONFIDENCE to the Wachovia depositors preventing a financial RUN on Wachovia.
6.Citi committed its full financial support to Wachovia because it believed it made a SOLID Exclusive deal.
On Monday, Wachovia ACCEPTED the full financial support of CITI thus ACCEPTING the deal with Citi. Wells was present in the same negotiations and left Wachovia to fail figuring it would buy the pieces in Bankruptcy.
6. The Fraud committed by Wachovia and by Torturous Interference by Wells, whom Citi had demanded Wells cancel it's deal while presenting it's Exclusivity agreement. Wells jumped into the NOOSE when it refused to walk away thus deliberately helping the CRIME committed by Wachovia.
7. Citi promises The INDIVIDUALS representing Wachovia and Wells will be PROSECUTED to the fullest as well.
8. Wells Fargo had it's own Subprime Bank which was SHUT DOWN. How many Billions did Wells lose with their subprime adventure?? Has Wells disclosed their subprime losses??