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Citigroup sues Wachovia, Wells Fargo for $60B
2008-10-06
NEW YORK - Citigroup Inc. said Monday it has filed a complaint in New York Supreme Court against Wachovia, Wells Fargo and the directors of both companies seeking more than $60 billion in damages for interfering with the bank's planned takeover of Wachovia's banking operations. The complaint, brought on Saturday and filed Monday, seeks more than $20 billion in compensatory damages and more than $40 billion in punitive damages from San Francisco-based Wells Fargo & Co. for tortious interference. Citigroup also seeks relief from Wachovia for what it called its bad-faith breach of the banks' contract. Meanwhile, Federal Reserve officials have been in talks with Wells Fargo and Citigroup in the hope of getting the parties to come to some sort of agreement, according to a person with knowledge of the talks. The person spoke on condition of anonymity because of the sensitive nature of the matter. The Wall Street Journal reported Monday that the discussions could result in the two suitors carving up Wachovia Corp.'s network of 3,346 branches along geographic lines, citing people familiar with the situation. Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., in response to a question from an audience member at the National Association of Business Economists conference about the fate of Wachovia, said: "I think we will have one (resolution) today" that is in accord with the public interest. She did not elaborate. Early last week, Citigroup Inc. agreed to buy Wachovia's banking assets for $2.1 billion in a deal brokered by the FDIC. In a surprising twist of events, Wells Fargo announced Friday that it agreed to acquire Wachovia in a deal worth $15.1 billion at the time, or $14.8 billion based on Wells Fargo's closing price Friday of $34.56. Wells Fargo's deal did not require any government support. "Citi agreed to the government's request to assist with a rescue of Wachovia after Wells Fargo walked away from Wachovia," Citigroup said in its statement. "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." Wachovia spokeswoman said the company had not received a lawsuit. Representatives from Wells Fargo were not immediately available for comment. The battle between Wells Fargo and Citigroup for Charlotte, N.C.-based Wachovia moved to court over the weekend. On Sunday, the Appellate Division of the New York State Supreme Court dismissed an order issued late Saturday by Justice Charles Ramos at Citigroup's request that would have extended the time Citigroup had to complete its acquisition of Wachovia. The fight was also waged in federal court, where Wachovia asked U.S. District Judge John Koeltl to declare invalid part of the Citigroup deal that would have restricted Wachovia from considering competing bids. Also Sunday, a county court in North Carolina ruled against Citigroup in its battle for Wachovia. The Superior Court Division of Mecklenburg County General Court of Justice in North Carolina issued a temporary restraining order on behalf of two Wachovia shareholders prohibiting Citigroup from enforcing provisions of its takeover bid of Wachovia. The provisions restrict Wachovia's ability to negotiate other potential deals. The litigation may be eclipsed by some sort of compromise or deal, said Carl Tobias, a professor at the University of Richmond School of Law. All of the parties involved have stressed the urgency of resolving the battle, as a prolonged court fight could further weaken the ailing Wachovia. "If this goes into a protracted legal battle, everybody loses," said Frederick Cannon, an analyst at Keefe, Bruyette & Woods in an interview with The Associated Press. "Wachovia is big enough that it would be a negative for the financial system. Given that situation, we will see a resolution pretty quickly." Wachovia, like many banks, has been slammed over the past year by defaulting mortgages, particularly in its portfolio of option adjustable-rate mortgages, which allowed many customers to pay less than the monthly interest owed on the loan. It was clear from documents filed in federal court Sunday that Wachovia was in considerable trouble when it agreed to the Citigroup deal. Wachovia disclosed that it agreed to the deal "with the understanding that a seizure of its banking assets later that day by the Federal Deposit Insurance Corp. would occur" unless it accepted Citigroup's proposal. ___ AP Business Writer Marcy Gordon in Washington, D.C., contributed to this story.
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