Bankruptcy

Too Much News!

By J. Michael McBride

First, the fight between Citi and Wells over Wachovia. The two deals are starkly different. The Citi deal looks to have been “pretty sweet” for Citi (always depending on what Wachovia’s true liabilities turn out to be) and the Wells deal is “way better” for Wachovia shareholders. As I previously said, there is no way to tell what the long term impact such a deal, if it makes, would have on Wells. One gets the feeling that Wells had not been included in the bail out buy out and wanted in, at any cost.

Short report:

Three Courts, so far: Citi sues Wells since it had a no shop deal with Wachovia and a Judge issues an injunction temporarily preventing a Wells deal. There are now three dueling suits, one in NY (where Citi is based) and one in NC (where Wachovia is based). “A county court in North Carolina late Sunday ruled against Citigroup Inc. in its fight against Wells Fargo & Co. to acquire Wachovia Corp….It is the third court to become involved with the battle.” Here is a link to this article: http://www.forbes.com/feeds/ap/2008/10/06/ap5511900.html

Feds are Stuck in the Middle: The Feds are in a bit of a bind since the deal they brokered is so much worse for Wachovia shareholders and the government (the Wells deal costs the government nothing, unlike the Citi deal). The Federal reserve is now suggesting that Citi and Wells split Wachovia. “Under the plan discussed Sunday night, the Journal said, Citigroup would get the Charlotte, North Carolina-based bank's Northeast and mid-Atlantic branches, while Wells Fargo would get branches in the Southeast and California and Wachovia's asset management and brokerage units.” Here is a link to that article: http://www.iht.com/articles/ap/2008/10/06/business/NA-US-Federal-Reserve-Wachovia.php One wonders what will become of Wachovia if some deal is not inked soon, like today. Of course that might be the best thing for Wells and Citi shareholders if an obvious deterioration of Wachovia caused the suitors to re-think their pricing.

Federal Reserve Pumps More Money: In a move which has been repeated many times this year, the Federal Reserve has again increased the money supply by making even more money available to banks. This action is based on the oft quoted belief by Chairman Bernake that the Great Depression could have been eased if only the Fed would have made more money available. “The Fed said it would double the size of its emergency loan program to banks to a potential $900 billion by the end of the year. …The announcement came as the central bank announced that it will begin to pay interest on bank reserves. This will give the Fed ‘greater scope’ to address conditions in credit market…. The Fed will increase the size of its term auction facility auctions to $150 billion beginning later Monday.” Here is a link to that article: http://www.marketwatch.com/news/story/fed-treasury-announce-new-steps/story.aspx?guid=%7B80A62574-3F24-471C-8AD0-499AE370245A%7D&dist=msr_1

We will keep you posted. Michael

Full post as published by Texas Lawyer Blog on October 06, 2008 (boomark / email).