Citi wins injunction to block Wachovia-Fargo merger

"Citi tonight was granted emergency injunctive relief extending the exclusivity agreement between Citi and Wachovia Corp until further order of the court," Citi said in a statement late Saturday.

A New York judge agreed to block the sale pending review of a pre-existing agreement giving Citigroup exclusive rights to negotiate a purchase of Wachovia's banking operations for $2.2 billion.

The Citigroup-Wachovia deal was brokered by the Federal Deposits Insurance Corporation, which had agreed to take on potentially hundreds of billions of dollars of future Wachovia loan losses to ensure it went ahead.

Citi claims exclusive rights to a takeover of troubled retail bank Wachovia after the two companies announced a merger deal, with U.S. government backing, last Monday.

Citi cried foul and threatened court action after Wachovia announced a rival merger deal with California-based Wells Fargo last Friday.

GOVERNMENT HELP
Citigroup, which has sustained about $60 billion of write downs and losses during the credit crunch, planned to buy Wachovia's banking assets with U.S. help, including partial government guarantees on a $312 billion Wachovia loan book.

The deal is important for Citigroup Chief Executive Vikram Pandit, who is looking to turn around the ailing bank in part by focusing on stable businesses such as consumer banking.

Wells Fargo, the seventh largest U.S. bank by assets, has managed to remain consistently profitable during the credit crunch. Its bid would not require government backing.

Regulators said on Friday they had not looked at the Wells Fargo bid.

Under that bid, for each share of Wachovia, investors would receive 0.1991 of a Wells Fargo share, which is equal to $6.88 a share based on Wells Fargo's closing price on Friday of $34.56.

U.S. banks have been scrambling to build or buy branches, which allow them to raise money from depositors. In a credit crunch, deposit funding can be cheap compared to borrowing in bond markets.

Winning the Wachovia branches would help Citi bolster its relatively weak network of U.S. branches, which number about 1,000 compared with Wachovia's 3,300 and Wells Fargo's 3,400.

Wachovia is the latest casualty of a crisis that has led to shotgun sales of Bear Stearns Co’s and Merrill Lynch & Co Inc, the near collapse of American International Group Inc, and the bankruptcies of Lehman Brothers and Washington Mutual.

Photo: Reuters