Bankruptcy

More on Citi vs. Wells vs. Wachovia vs?..

By J. Michael McBride

These multiple cases are in desperate need of a mediated settlement! As a trained mediator, I would say that most all suits fit into this category, but especially this mess where the patient may die on the table (Wachovia) while Nero fiddles (Citi and Wells fight). (Don’t you love mixed metaphors?) All this death on the table and fiddling around occurs against the scariest economic backdrop in recent history. That backdrop has the potential engulfing all of the players. So, I hereby suggest myself as mediator of this dispute! But whoever does it, it should resolve.

“Citi (market capitalization: $82 billion after Tuesday's rout) has sued Wachovia and Wells for $60 billion for breach of contract and tortious interference for breaking up the FDIC-brokered marriage between Citi and Wachovia last week. Wachovia, meanwhile, has sued in federal court to stop Citi from stopping Wells Fargo.

This is a mess, no question. So we can understand why the Federal Reserve is attempting to play Solomon with the Wachovia baby, and has apparently sent everyone to their room until they agree to play nice, or at least until noon on Wednesday, when the truce announced Monday afternoon is set to expire and the multifront litigation can resume.

But a moment's reflection reveals that Citigroup has already been expelled from the paradise in which it acquired most of Wachovia for $1 a share with the FDIC taking most of the exposure. Wachovia's board cannot voluntarily accept that deal in favor of Wells Fargo's $7 a share offer; if it did, it would be sued by its own shareholders.

At the same time, if the terms of the deal are changed -- if Wells and Citi agree to split the baby, or Citi agrees to raise its price -- Citi would almost certainly lose the FDIC's guarantee on any losses above $42 billion. Citigroup presumably doesn't want that, either.”

Here is a link to this article:
http://online.wsj.com/article/SB122342464623413467.html

Michael

Full post as published by Texas Lawyer Blog on October 08, 2008 (boomark / email).