McCrory: I can't take sides

CHARLOTTE, N.C. -- After a weekend of legal wrangling, the battle for Wachovia headed behind closed doors Monday afternoon, with the Charlotte bank's future likely to be decided through private negotiations instead of public arguments.

Wachovia and its two suitors, Citigroup and Wells Fargo, agreed to a legal cease-fire until noon Wednesday, and – with the help of the Federal Reserve – could reach a deal soon over Wachovia's fate. That, in turn, could determine how many banking jobs ultimately will remain in Charlotte.

The banks' “standstill agreement” halting formal litigation came after a weekend of legal jousting in multiple courts. It came just hours after Citi's announcement Monday that it had sued Wachovia and Wells Fargo, seeking more than $60 billion in damages from Wells for interfering with Citi's deal with Wachovia.

At stake for the region are roughly 20,000 Wachovia jobs that have helped make Charlotte the nation's No. 2 banking center. Any acquisition almost certainly will mean fewer jobs, but many employees and local leaders fear even bigger losses in a deal that breaks up the company's divisions – either under one new owner or in a negotiated split.

The deal under negotiation could yield dramatically different results, from an outright purchase by one of the suitors or some division of Wachovia's assets.

A source with knowledge of the situation told the Observer on Monday that “Wachovia to some degree is on the table” and could be split up between Citi and Wells. While Citi is pushing its original deal to buy parts of Wachovia for $2.16 billion, the two sides are far apart, and there's a “a lot of work to be done,” said the source, who didn't want to be named because he isn't authorized to discuss the situation. Wachovia is playing a small role in these talks, sources said.

One of the company's biggest shareholders, hedge fund investor William Ackman, told a New York conference crowd Monday that he backed a breakup because the company would be worth more if the bank and brokerage business were pulled apart.

In the Citi deal announced Sept. 29, the federal government would absorb loan losses above $42 billion. Wachovia's brokerage and asset management businesses would remain separate, and Citi said it would keep its combined retail bank based in Charlotte. A source familiar with the deal said Citi wouldn't cut any retail banking jobs in Charlotte.

On Friday, however, Wachovia and Wells announced a deal in which Wells would buy all of Wachovia for about $15.1 billion and without government assistance, although it could reap billions in tax advantages. Wells also indicated it would maintain much of Wachovia's current Charlotte presence, which many Wachovia employees have praised.

The dueling bids led the banks to the courts over the weekend but now they appear willing to work toward a deal in private.

“I think that's promising,” said Lissa Broome, professor of banking law at UNC Chapel Hill's law school. “Maybe this is the best way to work it out.”

In a plan reported Sunday by The Wall Street Journal, Citi and Wells would carve up Wachovia, with Citi getting branches in the Northeast and mid-Atlantic regions. Wells would get branches in the Southeast and California, as well as the asset management and brokerage businesses.

A split like that is possible, Broome said, but Wells – which had planned to make Charlotte the headquarters for its East Coast retail, commercial and corporate banking business – also could try to stick with its plan and compensate Citi in another way.

“If Wells wants it bad enough,” she said, “they can pay Citi x dollars for them to go away and drop it.”

Another professor, Elizabeth Nowicki of Tulane Law School, also said Citi could get some kind of damages to allow the Wells-Wachovia deal to go through.

“I think this is going to resolve with Citi getting a nice payment,” she said Monday, before the truce was announced.

Citigroup files complaint

Citi said in its statement that it remains “very excited” about buying the bulk of Wachovia, and that the Citi-Wachovia deal would have been finalized Friday “if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors.”

Citi filed its complaint Monday in New York's state Supreme Court, two days after the bank asked a judge to extend its “exclusivity agreement” with Wachovia pending a hearing scheduled for Friday. The judge ruled in Citi's favor, but a New York state appellate judge overturned the ruling Sunday.

That same day, a U.S. District Court judge – at Wachovia's request – said the bank “appears” to have been permitted to consider merger offers other than Citi's. That judge set a hearing for today, but that hearing was postponed with Monday's truce.

The exclusivity agreement with Citi barred Wachovia from soliciting or otherwise assisting in offers from other companies, though final merger papers were never signed.

In its complaint, Citi said it worked with Wachovia through last week to try to finalize the deal and expected to announce a completed deal Friday. Around 2:15 a.m. Friday, however, Wachovia chief executive Bob Steel told Citi that his bank would merge with Wells Fargo instead.

Citi claimed the Wells-Wachovia deal breaches its exclusivity agreement, though Wachovia has said that it is allowed under a provision of the government bailout bill.

Citi was especially spurned, it said, because Wachovia would have failed had Citi not stepped in to buy it. “This was always a deal Citi wanted rather than needed,” the company said Monday in a statement. Citi also alleges that the Wells Fargo deal – unlike the Citi deal – triggers “golden parachute” severance packages for Wachovia senior executives giving them “a $225 million windfall.”

The suit named Steel, Wells Fargo chairman Dick Kovacevich and Wells CEO John Stumpf, as well as individual board members.

Despite the lawsuit, Citi still wants to acquire Wachovia as planned. The company said it's “confident that the few remaining open issues between the parties can be resolved promptly in good faith negotiations.” It said it “is prepared to go well beyond the halfway mark if necessary to consummate the transaction agreed to by the parties.”

Wachovia spokeswoman Christy Phillips-Brown affirmed Monday that the company continues to believe the Wells Fargo agreement is valid and in the best interests of shareholders, employees, creditors and retirees.

Observer news services and staff writers Kirsten Valle and Rick Rothacker contributed.

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