Wachovia, Citi, Wells Fargo To Halt Litigation

Wachovia and suitors Wells Fargo and Citigroup agreed on Monday to halt all litigation until noon Wednesday in hopes of deciding the winner of the troubled North Carolina -based bank.

Chuck Burton / AP

Wells Fargo and Citigroup have been battling over the bank since Wells Fargo announced an offer Friday that bested Citigroup's proposal a week ago.

As part of their agreement on Monday to halt all litigation, effective immediately, the three banks also said they would cease any formal discovery activities.

The increasingly bitter dispute, which flared through the weekend, has drawn in U.S. government officials in an attempt to broker a deal. Sheila Bair, chairman of the Federal Deposit Insurance Corp (FDIC), said she expected an agreement "that serves the public interest" to be reached Monday.

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A person familiar with the situation said the various options discussed in the talks with the government included dividing up Wachovia between the two feuding companies. The source added that Wells Fargo would still like to buy all of Wachovia.

Citi, which announced a preliminary agreement to buy Wachovia's banking assets for $2.2 billion a week ago, was considering an offer for the entire bank, among other options, a person close to Citi said.

But the source also said Citi has no appetite to buy Wachovia's assets without some sort of government guarantee—unlike Wells Fargo, which made a $15 billion counterbid for the entire bank on Friday.

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In its latest courthouse volley against Wells Fargo, Citi said it was seeking more than $60 billion in damages from Wells Fargo. Citi said Wachovia would have collapsed on Sept. 30 without its agreement to acquire most of its assets.

This followed a weekend of legal wrangling during which Citi lawyers traveled to the Connecticut home of a New York judge on Saturday to obtain an order to extend its agreement to negotiate exclusively with Wachovia. The order was overturned a day later.

Depositor Anxiety

Citi shares ended down 5.1 percent to $17.41 on worries it could lose the chance to increase its deposit base through a Wachovia takeover, while Wachovia dropped 6.9 percent to $5.78 on concern over the impact of a protracted legal battle.

Shares in Wells Fargo closed down 2.7 percent to $33.64 after Citi sued San Francisco -based Wells and Wachovia for breach of contract.

"A protracted legal squabble is in no one's interest," said Michael Farr, president of investment manager Farr, Miller & Washington. He said the uncertainty over Wachovia's future will likely cause depositors to withdraw savings from the bank.

Some big investors, however, saw opportunities in the tumbling stocks. Speaking at an investor conference Monday, William Ackman, who runs New York -based Pershing Square Capital Management, said Wachovia is "an incredibly strategic asset" for either Citi or Wells Fargo.

The hedge fund manager said he has been aggressively buying shares in less complicated and "great franchises," including Wachovia, in which he owns 180 million shares.

Wells Fargo, the No. 7 U.S. bank by assets, has managed to remain profitable during the credit crunch, while Citi is looking to turn around its ailing business after posting about $60 billion in write-downs and losses during the last year.

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