In order for Citigroup and Wachovia to enter into their agreement in principle and complete the due diligence, the two companies entered into an exclusive commercial agreement for the period from September 29 to October 6. During this period, Citigroup filed an application with the Federal Reserve for expedited approval of the proposed acquisition of Wachovia. The day after WaMu`s failure, Wachovia Bank depositors accelerated the withdrawal of large amounts from their accounts. In addition, Wachovia wholesale fund providers have withdrawn their cash support. It seemed likely that Wachovia would soon no longer be able to finance its operations. This week, Wachovia`s management, which held preliminary discussions with potential merger partners earlier this month, began serious discussions about the sale of the company. July 27 and 28. In September, Citigroup and Wells Fargo, the second and fifth largest banking organizations in the United States, conducted due diligence investigations conducted by Wachovia. Citigroup and Wells Fargo also contacted federal authorities, stating that state support was needed for each of their proposed offers to acquire Wachovia.
“Wells Fargo expects merger and integration costs of approximately $10 billion. To maintain its strong capital position, Wells Fargo intends to issue up to $20 billion in new Wells Fargo securities, primarily common stock,” the company said. Compared to the purchase of CoreStates, the merger of First Union and Wachovia was considered a success by analysts. The deliberate pace of the company`s transformation seems to have prevented significant customer turnover. In fact, Wachovia was ranked number one in customer satisfaction among major banks by the University of Michigan`s annual U.S. Customer Satisfaction Index for each year after the merger. [24] In March 2010, Wachovia admitted to “serious and systemic” violations of the Bank Secrecy Law that allowed Mexican and Colombian drug cartels[70] to launder $378.4 billion between 2004 and 2007, which was “the largest violation of the Bank Secrecy Law.” [71] It negotiated a deferred prosecution agreement with the Department of Justice to resolve criminal charges of intentionally failing to implement an effective anti-money laundering program. He agreed to lose $110 million and pay a $50 million fine to the U.S. Treasury Department. In a statement, Citigroup said: “Wachovia`s agreement on a transaction with Wells Fargo clearly violates an exclusivity agreement between Citi and Wachovia.
In addition, Wells Fargo`s conduct constitutes unlawful interference. In documents filed in a federal court in New York two days before the merger was approved, Citigroup argued that its own deal was better for U.S. taxpayers and Wachovia shareholders. He said he had exposed himself to a “significant economic risk” by expressing his intention to bail out Wachovia after less than 72 hours of due diligence. Citigroup had received an exclusive agreement to protect itself. [64] Wachovia suffered a loss of $23.9 billion in the third quarter. [65] As a result, Citi has now asked wachovia and Wells Fargo to terminate their merger agreement. “Citi has negotiated in good faith and has clearly entered into the definitive agreements necessary to complete the Citi/Wachovia transaction,” the press release said. Citigroup Inc. is threatening to take legal action against Wachovia Corp., claiming that the small bank violated an exclusivity agreement by signing a merger agreement with Wells Fargo & Co.
instead of honoring the one it already had with Citi. “Economically and risk-wise, we believe this will lead to better organization,” Richard Kovacevich, president of Wells Fargo, said on a conference call. It`s still too early to talk about the management structure, but the post-merger company would be called Wells Fargo. A merger of Citi and Wachovia would create a retail banking business with total deposits of $1.3 trillion, or nearly 10 percent of U.S. deposits. The combined merger of Wachovia and Wells Fargo would create a $787 billion bank with deposits. Wachovia is the product of a 2001 merger between the original Wachovia Corporation, based in Winston-Salem, North Carolina; and First Union Corporation, based in Charlotte. Wachovia`s board of directors rejected SunTrust`s offer and supported the merger with First Union.
SunTrust continued its hostile takeover bid attempt, which led to a fierce battle between SunTrust and First Union over the summer. [19] Both banks increased their bids on Wachovia, placed ads in newspapers, sent letters to shareholders, and initiated legal proceedings to challenge each other`s takeover bids. [20] The 3. In August 2001, Wachovia shareholders approved the First Union deal, rejecting SunTrust`s attempts to elect a new board of directors for Wachovia and ending SunTrust`s hostile takeover attempt. [21] On October 9, 2008, Citigroup abandoned its attempt to acquire Wachovia`s bank assets, resulting in the merger between Wachovia and Wells Fargo. However, Citigroup has sued claims of $60 billion, $20 billion in damages and $40 billion in punitive damages against Wachovia and Wells Fargo for alleged violations of the exclusivity agreement. [61] Wells Fargo settled this dispute with Citigroup Inc. for $100 million on November 19, 2010. [62] Citigroup may have been pressured by regulators to withdraw from the agreement; Bair supported Wells Fargo`s offer because it removed the FDIC from the image. Geithner was furious, saying the overthrow of the FDIC would undermine the government`s ability to quickly bail out failed banks.
However, Geithner`s colleagues at the Fed were unwilling to take responsibility for the sale of Wachovia. [47] The Sandlers sold their business at the top of the market, saying they were aging and wanted to devote themselves to philanthropy. A year earlier, in 2005, global savings lending had slowed after more than quadrupling since 1998. Some current and former Wachovia officials say the merger was agreed in a matter of days and that it was impossible to conduct a thorough review of World Savings` loans. They found that the creditworthiness of World Savings borrowers declined slightly from 2004 to 2006, while pick-A-pay borrowers had credit scores well below the industry average for traditional loans. The overall volume of savings loans declined again in 2006, shortly after the start of the sale to Wachovia. In 2007, after the merger, World Savings, now known as Wachovia Mortgage, began attracting more borrowers by taking a step that some regulators began to disapprove of and that the former management of World Savings had opposed for years: it allowed borrowers to make monthly payments based on an annual interest rate of just 1%. While Wachovia Mortgage continued to study borrowers` ability to handle increased payments, the shift to low interest rates attracted customers whose financial reliability was more difficult to verify.
[32] More than 70% of pick-A-pay loans were made in California, Florida and Arizona, where home prices fell sharply. New York Times reporter Floyd Norris called World Savings a “ticking time bomb” that had created “zombie owners.” [33] The merged company retained the Wells Fargo name and was based in San Francisco. However, Charlotte remained the headquarters of the merged company`s banking operations on the East Coast, and Wachovia Securities remained in Charlotte. Three members of Wachovia`s Board of Directors have joined Wells Fargo`s Board of Directors. The merger created the largest agency network in the United States. When Wachovia and First Union merged, Charlotte`s One, Two, and Three First Union buildings became One, Two, and Three Wachovia Centers, respectively, and the 55-story First Union Financial Center in downtown Miami became the Wachovia Financial Center. The merger also affected the names of the covered professional sports arenas in Philadelphia and Wilkes-Barre, Pennsylvania. .