Wachovia Split Up More Complicated Than Citi, Wells Fargo Imagined

Although Citi and Wells Fargo agreed to extend their legal truce, the two banks are still negotiating how to share Wachovia, and talks are being held up by unforeseen difficulties.

WSJ: Talks between Citigroup Inc., Wells Fargo & Co. and the U.S. government over a way to divide Wachovia Corp. between its two suitors were hung up on several key issues Wednesday, according to people familiar with the situation.

The discussions, which began Sunday, have been snagged over the intricacies of carving up the Charlotte, N.C., bank, ranging from deposits to loans to securities. After burrowing deeper into Wachovia’s books, Citigroup and Wells Fargo have been surprised by the concentration of assets they regard as low-quality, these people said.

As a result, both banks are worried that buying even part of Wachovia could saddle them with steeper losses than previously expected.

The two would-be buyers also have been sparring over the computer system used in Wachovia’s 3,348 retail branches, one person familiar with the discussions said Wednesday. Citigroup, known for its hodgepodge of technology that hasn’t been fully integrated, wants full control of Wachovia’s system when the deal closes. Wells Fargo has countered that the two banks should share it temporarily.

Also adding jitters to the Wachovia talks were Bank of America Corp.’s struggles on Tuesday to sell $10 billion in stock. Citigroup and Wells Fargo have said they plan to sell stock as part of their competing takeover offers for Wachovia, but that could be more difficult than they previously thought.

Insiders are hopeful that a deal will be reached.

Indeed, The New York Times is reporting that Citi and Wells Fargo are near a compromise that would give most of the bank to Wells Fargo.

NYT: Citigroup and Wells Fargo, the two banks vying for control of the Wachovia Corporation, are negotiating a compromise that would hand the bulk of the troubled bank to Wells Fargo, according to people close to the situation…

People close to the negotiations said on Wednesday that the two banks appeared to be heading toward a solution that would give Wells Fargo about 80 per cent of Wachovia’s deposits, along with its branches on the West Coast and in the Southeast. Under this solution, Wells would also buy Wachovia’s big retail brokerage and mutual fund arms.

Citigroup would get the remaining 20 per cent of Wachovia’s deposits, which correspond with its branches in the mid-Atlantic and the Northeast. Citigroup has desired cheaper and more stable customer deposits, especially as the capital markets have frozen up.

To orchestrate such a deal, Wells Fargo would buy all of Wachovia and then sell parts of the bank to Citigroup, according to a person close to the situation.

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