Bankruptcy

Who got the Better Deal, Citi or Wells?

By J. Michael McBride

Recall the fight between Citi and Wells over Wachovia? Citi had a deal which involved an asset purchase as well as offloading much of Wachovia’s bad debts onto the government. Wells came along and offered to buy all of Wachovia (debts and assets…) in a stock purchase which exponentionally trumped the Citi deal. There were several suits, injunctions, differing results from different courts, until Citi wisely I think threw in the towel. However, Citi kept its suit for damages for breach of the deal it almost had. Well, as noted in earlier blog postings, one major variable in a protracted purchase [which also happens to be occurring in the midst of the largest economic downturn perhaps ever] is the health of the acquiree, in this case, Wachovia. It can deteriorate before the deal is inked. That is precisely what has happened. Let’s hope that Wells inserted a variable purchase price based on Wachovia’s performance in their offer; however, there has been no report of such a clause in anything which I have read.

“In likely its last earnings report as an independent company, Wachovia Corp. today said it lost $23.89 billion, or $11.18 per share, in the third quarter as it took an $18.8 billion writedown to reflect the company's lower market valuation and the terms of its sale to Wells Fargo & Co.

The loss compared with a profit of $1.62 billion, or 85 cents per share, in the third quarter of last year, when banks were first hit by a then developing credit crunch. Excluding the goodwill writedown and other charges, Wachovia lost $4.76 billion, or $2.23 per share, in the period.

Mortgage woes also continued to devour earnings at Wachovia, South Carolina's largest bank.

The Charlotte-based bank set aside $6.6 billion to cover loan losses during the quarter about two-thirds for Pick-A-Payment mortgage loans inherited in the bank's 2006 Golden West Financial Corp. acquisition. The bank now expects cumulative losses in the $118.7 billion Pick-A-Pay portfolio of 22 percent, up from an estimate in July of 12 percent, as home values continue to fall in markets such as California and Florida.

The report is the third straight trip into the red for Wachovia, which lost $9.1 billion in the second quarter and $707 million in the first quarter.”

Here is a link to the whole article:
http://www.thestate.com/breakingbiz/story/563581.html

Michael

Full post as published by Texas Lawyer Blog on October 22, 2008 (boomark / email).