BloombergThe financial wreckage of 2008 has left no part of our country untouched. It exposed the bankruptcy of business models employed by mortgage companies, investment banks, and rating agencies as well as the flaws of innovations such as structured finance and credit default swaps. It also highlighted regulatory gaps and failures at almost every level of oversight.

In 2008 Bear Stearns Cos. and Lehman Brothers Holdings Inc. imploded, Fannie Mae and Freddie Mac were placed into conservatorship, mainstay Wall Street firms like Merrill Lynch & Co. Inc. were forced to merge with other companies, and giant institutions such as American International Group Inc. clung to existence on federal life support.

More painfully, too many Americans face the twin perils of home foreclosure and job loss as frozen credit markets signal an increasingly deep economic slowdown.

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New York (HedgeCo.Net) – In an emergency hearing yesterday, U.S. District Judge John Koeltl left the door open for Wachovia to consider better offers, saying the law “appears” to permit bids from other potential buyers.  This decision comes at a time when Wells Fargo is considering a $15 billion proposal, a substantial increase from Citigroup’s $2 billion bid for the Charlotte-based bank.

 “What was an institution that needed assistance now has another transaction it views even more favorably,” said Judge Koeltl at the hearing.

Citigroup, who placed a bid for the branch system of Wachovia last month, is looking to the future while trying to move past over $60 billion in losses stemming from the subprime fallout and the credit crisis that ensued. 

While Citigroup did have an exclusivity agreement with Wachovia that would forbid the bank from speaking to any other potential buyers, lawyers for Wachovia argue that the new $700 billion government bailout plan permits Wachovia to dabble in other offers. 

“We are entitled as a matter of law to a judgment that Wachovia is permitted to go forward with Wells Fargo,” lawyers for Wachovia told the judge. “This is a matter of considerable urgency.”

Wachovia has stated they believe a deal with Wells Fargo would be in the interest of investors and shareholders since Wells Fargo does not need government assistance and was not hit nearly as hard by the mortgage crisis.  While Citigroup’s bid included only the branches of Wachovia, Wells Fargo would be purchasing the entire company.

Judge Koeltl scheduled a hearing for October 7^th, in which another judge will preside and determine the next course of action.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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