Wells Fargo plans to buy Wachovia; Citi ends talks

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(Agencies)
Updated: 2008-10-10 17:08

NEW YORK - Citigroup abandoned its brief but acrimonious battle with Wells Fargo & Co over Wachovia Corp, one of the United States' largest banks, losing out on a deal crucial to strengthening its retail banking business but vowing to pursue up to $60 billion in legal claims.

A man passes a Wachovia Bank branch October 2, 2008 in Washington, DC.[Agencies]

Wells Fargo Chairman Dick Kovacevich called the merger "simply an incredible fit," while Wachovia CEO Robert Steel said the deal would create "one of the strongest financial firms in the world."

The Federal Reserve, which tried to broker a deal among all three banks, said it would immediately begin the approval process.

If approved by regulators, a Wells Fargo-Wachovia banking behemoth would rival Bank of America, the largest US bank. The new bank would boast $787 billion in deposits, 280,000 employees and 48 million customers.

In a statement, Citigroup said that "dramatic differences in the parties' transaction structures" and "their views of the risks involved" make a deal for Wachovia impossible at this stage.

Citing dramatic differences in transaction structures and views of risks, Citi said on Thursday that a deal was "impossible." But the bank said it remained willing to buy Wachovia under terms of its original deal.

Wells Fargo praised Citigroup's move and said it would aim to close the deal in the fourth quarter.

"We believe that is the correct and right decision for our country and our citizens and the health of our already stressed financial system, as well as our and Wachovia's respective shareholders and stakeholders," Wells Fargo Chairman Dick Kovacevich said in a statement.

Citi's sudden retreat came on a day the broader market fell 7 percent as investors worried that moves by governments around the world to thaw frozen credit markets might not be enough to avert a global recession.

In particular, financial stocks were hit hard, with Wachovia falling 29 percent, Morgan Stanley tumbling 26 percent and Citi declining 10 percent. In extended trading after Citi announced that it was pulling out, its shares rose 15 percent to $14.88 after closing at $12.93; Wachovia shares rose about 18 percent to $4.24 after closing at $3.60; and Wells Fargo shares rose 3 percent to $28.00 after closing at $27.25 on the New York Stock Exchange.

A Wells Fargo-Wachovia marriage would resolve the fate of another troubled US bank that was forced to put itself up for sale amid frozen credit markets and rising losses on mortgage-related assets.

As the financial crisis deepened in recent weeks, Merrill Lynch & Co Inc agreed to be bought by Bank of America Corp, Washington Mutual Inc was seized by regulators and taken over by JPMorgan Chase & Co Inc and Lehman Brothers Holdings Inc filed for Chapter 11 bankruptcy protection.

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