Banking Law

Two years ago, the banking, business, and legal trade papers and blogs were abuzz with the merits of the claims made by Citigroup against Wells Fargo and Wachovia over the machinations of those organizations and the FDIC in the sale of Wachovia first to Citi and then to Wells Fargo. Opinions flew back and forth as to whether the FDIC had double-dealt Citi, whether the bailout bill in 2008 had given the FDIC an iron-clad right to stab Citi in the back, and who would be left standing when the dust finally settled. In a society riddled with ADHD, press and reader attention soon turned to more pressing matters, like Tiger Woods' wife taking a 9-iron to his cranium, Lindsay Lohan's latest rehab relapse, and the eternal debate over which man has the better tan: Angelo Mazilo, John Boehner, or George Hamilton.

Last week, we learned that rather than winning tens of billions of dollars, Citi settled its claims against Wells Fargo and Wachovia for a measly $100 million. As one observer told a reporter in a fit of understatement, "the $100 million amount seemed low relative to the stakes in the dispute. " Heck, $100 million will likely not even cover Citi's legal bills, given the billable hour diarrhea that afflicts large law firm litigation sections when feasting on a massive, tasty carcass like Citigroup's.

Bert Ely, one of our favorite gadflies, made a "most excellent" comment on the difference between the $80 billion in damages claimed and the $100 million paid to settle the lawsuits.

?You could look at it as being the equivalent of a breakup fee,? said Bert Ely, a banking consultant based in Alexandria, Virginia. ?That?s not an unreasonable way to do it because in effect Citi didn?t get the deal.?

Not only "in effect" didn't they get it, Bert, but they didn't get "in reality."

From the perspective of Wells Fargo, another observer was right on the money when he said that $100 million is spare change.

?The settlement amount is trivial, I think, a very modest, low amount relative to what Citi was claiming in damages,? said Bill Bradway, the founder of banking consultants Bradway Research LLC. ?$100 million in the big scheme of things for Wells is more or less a drop in the bucket.?

Since Citi later needed a big bailout from the Treasury, which now owns 11% of it, it could be argued that Wachovia went to the better acquirer. On the other hand, we'll never know what positive effects on Citigroup the acquisition might have had that would have lessened the amount of assistance Citi ultimately needed from Uncle Sam. There's also the fact to consider that from the impact on the FDIC insurance fund, the unassisted Wells Fargo transaction was much better than the assisted deal that the FDIC had agreed to do with Citi. 

Perhaps one indelible lesson to learn from this is that what seems like such a "big deal" at any one point in time often ends up being worth not more than a few paragraphs of electronic "ink" when it's finally put to bed.