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New York (HedgeCo.Net) - The tug of war over Wachovia continued yesterday, as Citigroup and Wells Fargo tried to reach an agreement over the future of the Charlotte-based bank.
According to transcripts from a teleconference held between U.S. District Judge Lewis Kaplan and the companies, a solution might be in the cards that entails Wachovia being split between Citigroup and Wells Fargo.
"There are negotiations between Wells Fargo and Citi about a possible grand solution that would preserve the shareholder value for Wachovia as represented by the Wells Fargo deal, but that would involve not a single choice between Citigroup and Wells Fargo," said David Boies, who represents Wachovia.
For now, both Citigroup and Wells Fargo extended a cease-fire that was originally ordered on Monday by Federal Reserve Officials for fears of market retributions.
Citigroup was believed to have a lock on Wachovia, after their $2.1 billion bid bought them the branch system of the troubled bank. Though not the best deal for Wachovia, having their assets seized by the FDIC was not a viable alternative. After they accepted the proposal, Wells Fargo came to the table and offered an astounding $15.1 billion for the entirety of Wachovia, sending Citigroup into a rage and forcing the issue of an exclusivity agreement.
Jane Sherburne, who also represents Wachovia, hopes that they can “facilitate in whatever way we can a negotiated settlement of this matter without escalating the issues in a litigation setting.”
In addition to the acquisation concerns, Citigroup is also going after Wells Fargo, seeking $60 billion in damages for interferring with the deal.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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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 7th, in which another judge will preside and determine the next course of action.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
New York (HedgeCo.Net) - Citigroup Inc. has purchased Wachovia’s banking operations at a price tag of $2.16 billion, or roughly $1 a share, after losses stemming from bad mortgages rendered a resurfacing nearly impossible. Citigroup will now have around 4,300 branches and offices and will surpass JPMorgan Chase as the largest U.S. bank by deposits.
Treasury Secretary Henry Paulson was pleased with the purchase, and said that a failure of Wachovia “would have posed a systemic risk" to our country’s financial system.
Wachovia is yet another casualty of the credit crisis and has suffered over $42 billion in losses from the subprime fallout. As the largest lender of adjustable-rate mortgages, Wachovia saw its shares plunge amidst a record number of defaults on home loans, particularly in Florida and California. The ARM’s offered low “teaser” introductory rates, luring subprime candidates. Many borrowers ended up owing more than what their home was actually worth.
Citigroup will absorb the bank’s losses, while trying to raise an additional $10 billion to pay off Wachovia’s senior and subordinated debt. Charlotte-based Wachovia will retain its Evergreen Asset Management unit, along with its retail brokerage unit, which oversees over $1 trillion in capital.
The purchase will help change the once gloomy outlook for Citigroup, who at one point this year, thought they might collapse themselves after writing down over $46 billion and being one of the hardest hit banks of the housing crisis. Citigroup posted losses in three consecutive quarters, but now says it plans on reducing expenses b more than $3 billion annually.
Citigroup CEO Vikram Pandit has assured investors that he is working closely with Wachovia CEO Bob Steel in an effort to make the transition with “precision” and “speed.”
The deal will no doubt help shed a more positive light on Pandit, after a period of bad press involving the now collapsed hedge fund he founded and eventually sold to Citigroup. The bank, after paying $800 his Old Lane Hedge Fund, $165 million of which went directly into Pandit’s pocket, decided to close up shop this summer after suffering unsustainable losses.
The merger will give Citigroup an almost 10 percent share of the U.S. banking market, with deposits globally exceeding $1.3 trillion.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Washington Post - That is the technical economic term that best sums up a day in which the House of Representatives refuses to pass a $700 billion rescue plan pushed by the White House and congressional leaders from both parties, Wachovia is taken over in a deal that will have the government potentially owning 10 percent of Citigroup, a few European banks fail, the Federal Reserve and other central banks are forced to inject an additional $300 billion into the global banking system, the Dow Jones industrial average plunges 778 points, and investors everywhere rush to the safety of gold and short-term Treasury bills.
The basic problem here is that too many people don’t understand the seriousness of the situation.
Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system.
New York (HedgeCo.Net) - Writedowns from major banks have reached the $500 billion mark, only one year after the subprime fallout forced mortgage-backed securities to plummet in value. And it’s not over. Some economists estimate that number will ascend upwards to $2 trillion by the time all the damage is done.
UBS, the European bank hit hardest by the U.S. fueled mortgage crisis, announced its second quarter losses yesterday to be $6 billion, most of which can be attributed to subprime-backed assets.
This marks the fourth consecutive quarterly loss that the Zurich-based bank has posted. UBS has previously written down over $35 billion since the credit crisis started last summer.
Other major banks are dealing with the same dilemmas. Wachovia has already experienced over $22 billion worth of write downs, while Merrill Lynch and Citigroup each have written down over $50 billion.
The current probe launched by New York Attorney General Andrew Cuomo isn’t helping either. Since major banks are now being forced to buy back bad auction-rate securities, many financial institutions are finding themselves in way over their head. In addition to the subprime-related mess, UBS has to allocate $20 billion to buy back the shoddy securities from disdained clients.
In an attempt to restructure, UBS also announced it will separate some key divisions of the company. The investment bank, which has been experiencing the major losses, will pull away from the bank’s wealth management and asset management divisions.
UBS hopes to give each section “maximum strategic flexibility.” While some speculate UBS is positioning themselves to be sold, chairman Peter Kurer has insisted that the companies are not for sale.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
New York (HedgeCo.Net) - Less than one week after UBS and Citigroup were called upon to buy back over $30 billion in bad auction-rate securities, New York Attorney General Andrew Cuomo is forcing JPMorgan, Morgan Stanley and Wachovia to follow suit.
In a letter to the three banks, Chief of the Attorney General’s Investor Protection Bureau David Markowitz wrote, “Our investigation’s focus is shifting to the next group of market participants. Any resolution would need to address the same concerns addressed in the previous settlements.”
UBS was slapped with $150 million in fines and is being forced to buy back some $18.6 billion worth of the auction-rate securities. These securities, backed by municipal bonds and other debts, were sold under the assumption they were a safe investment. Instead, the $330 market collapsed in February, leaving investors and now the government, wondering if the banks were up front about the potentially high risks associated with such investments.
The probe launched by Cuomo will investigate 18 different banks. He is insisting that banks create auction-rate securities buyback programs for the customers who got stuck selling their securities far below par.
Citigroup also got slapped with a $100 million fine and had to deal with both state regulators and the Securities and Exchange Commission. They eventually agreed to buyback $7.3 billion worth of the securities from individual customers and small businesses. In addition, they must help over 2,500 clients sell about $12 billion of the securities.
Morgan Stanley has agreed to buy back $4.5 billion worth of the securities at par. According to the Wall Street Journal, Morgan Stanley will repurchase the securities beginning no later than September 30, from all charities and small to mid-size companies with accounts of $10 million or less that were purchased before February 13th of this year.
Merrill Lynch, in an attempt to quell the probe before it starts, offered last week to buy back about $10 billion in the auction-rate securities. However, Cuomo’s office stated that their plan didn’t contain certain “investor protection safeguards.” The Merrill case is currently under review in Cuomo’s office.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Reuters - Wachovia Corp said on Monday it has had significant losses from a Citigroup hedge fund, joining Fifth Third Bancorp, which disclosed its loss in an April lawsuit.
Wachovia spokeswoman Christy Phillips-Brown said a $315 million write-down the bank disclosed earlier in May was related to investments in Citigroup’s Falcon Strategies hedge Fund. Wachovia, the fourth-largest U.S. bank, made the investments through its bank-owned life insurance portfolio.
Fifth Third said in a lawsuit filed on April 17 that it had invested $612 million in Falcon. The bank is looking to recover $323 million in damages from the two AEGON NV subsidiaries that had been managing its bank-owned life insurance portfolio.
Citigroup, Aegon and Fifth Third could not be immediately reached for comment.
An unidentified third bank also took a large loss in Falcon, the Wall Street Journal reported on Monday, citing sources familiar with the matter.
The Journal said the banks could ask Citigroup to give them some of their money back, because it has already agreed to do so for individual investors.