NEW YORK (Reuters) - Wells Fargo & Co is likely to get about 75 to 80 percent of Wachovia Corp’s deposits, while Citigroup Inc would get the remainder, a person briefed on the matter said on Tuesday.
The situation is in flux and the outcome is still unclear, the person cautioned, adding Wells Fargo may end up with 100 percent of Wachovia’s deposits, and Citigroup with none.
Wells Fargo and Citigroup are locked in an intense battle for Wachovia, a bank that has been hobbled by the mortgage crisis, but has a valuable network of branches. Citigroup said on September 29 it had preliminarily agreed to buy Wachovia’s banking assets for about $2.2 billion, with partial government guarantees. The Federal Deposit Insurance Corp helped broker that deal.
On Friday, Wells Fargo said it signed an agreement to buy all of Wachovia, including its retail brokerage and asset management business, in an all-stock deal worth about $15 billion at the time.
Analysts said it may make sense for Citigroup to get at least some assets in the transaction because the bank worked with the FDIC on the deal and supported Wachovia financially last week. If Wells Fargo can then swoop in and buy the assets, there could be larger consequences, analysts said.
“When the next bank failure comes up, there could be a real reluctance for banks to step forward,” said Lee Delaporte, director of research at Dreman Value Management in Jersey City, New Jersey. Dreman owns shares of Citigroup and Wachovia.
Banks will likely also make sure they have better contractual protections in FDIC-brokered transactions in the future, Delaporte added. Wachovia did not have a signed merger agreement with Citigroup, but the two banks did sign an agreement to negotiate exclusively with each other.
Lawyers for Citigroup and Well Fargo wrangled over the weekend over which bank’s agreement trumped the other‘s. On Monday, the two agreed to suspend legal proceedings until Wednesday and try to work out a compromise. The Federal Reserve has tried to help broker an agreement.
At this point, it appears Wells Fargo would take Wachovia’s branches and deposits in the U.S. Southeast and on the West Coast, while Citigroup would take branches and deposits in the Northeast, the person briefed in the matter said.
Wells Fargo would likely take most of Wachovia’s assets, including problem assets such as option-pay mortgages, the person said.
Wachovia and Citigroup declined to comment, while Wells Fargo was not available for comment.
Wachovia has about $420 billion of U.S. deposits, while Wells Fargo has about $300 billion, according to a Wells Fargo presentation last week. Citigroup has about $261 billion.
The two banks are both keen to boost their deposit base, which is often a cheaper way of financing than borrowing in bond markets.
Citigroup’s offer last week included a partial guarantee from the Federal Deposit Insurance Corp on a $312 billion Wachovia mortgage portfolio. Citigroup does not have any appetite to take the risk in that book onto its balance sheet without government help, a source told Reuters on Monday.
Wells Fargo, on the other hand, will buy those assets without any kind of a government guarantee. But Wells Fargo would also realize tax benefits from the deal. Analysts at Stifel Nicolaus estimated on Monday that whichever plan won the day, it would likely cost the U.S. about the $21 billion.
Editing by Andre Grenon