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Wells Fargo Buys Wachovia


From NPR News, this is All Things Considered. I'm Robert Siegel. This week began with news of a big merger between two banking giants, Wachovia and Citigroup. Well, now it seems that Citigroup has been left standing at the altar. Today, Wachovia said it was backing out of the deal, which was brokered by federal regulators, and taking up with Wells Fargo instead. It says Wells Fargo offered a better deal. As NPR's Jim Zarroli reports, it may not be that simple.

JIM ZARROLI: You might not think that the banking business could stand too much more turmoil and uncertainty, but the announcement today that Wachovia was merging with Wells Fargo had people everywhere scratching their heads. Federal regulators had grown alarmed by the heavy mortgage losses at Wachovia, and over the weekend, they had scoured the industry looking for a white knight. Wells Fargo had been among the banks that considered a deal only to say, no thanks, in the end. Then early this morning came word that Wells Fargo had changed its mind. What had happened? In a conference call today, Wells Fargo's Chairman Richard Kovacevich, said the company had simply needed more time to study Wachovia's books.

Mr. RICHARD KOVACEVICH (Chairman, Wells Fargo): And we have to be comfortable before we will ever make a decision, and it took this much time to be that comfortable and that's why we're here today.

ZARROLI: Still the decision to scrap the deal had Citigroup fuming and Citigroup officials dropped hints of legal action if Wells Fargo didn't back off. Asked about that possibility today, Kovacevich chose his words carefully.

Mr. KOVACEVICH: We feel very confident that this transaction has been done appropriately, and we'll continue and be consummated and we'll go forward with it.

ZARROLI: The truth is, scrapping the earlier deal makes a certain sense. For one thing, Citigroup had demanded that the federal government absorb some of Wachovia's bad debt which could have cost taxpayers billions of dollars. Wells Fargo made no such demand. Wells Fargo wants to acquire branches on the East Coast. Wachovia has a lot of them. Derick Ferver is an analyst at SNL Financial.

Mr. DERICK FERVER (Analyst, SNL Financial): I think it's an excellent deal for everyone all around. It's just a matter of whether, you know, Wells Fargo can, you know, get around whatever papers were signed to Citigroup.

ZARROLI: The question now is whether Citigroup can force Wachovia to honor the original deal. James Cox, Professor of Finance at Duke University, thinks it may have some trouble on that score. He says Wachovia's board may have agreed to the earlier merger, but the merger hasn't been approved by shareholders, and until it is, Wachovia's board can walk away. In fact, Cox says, it may have to.

Mr. JAMES COX (Professor of Finance, Duke University): Directors of a public company like Wachovia are under a fiduciary obligation to serve the interests of their shareholders, and they would not be serving the interests of their shareholders if they enter into a contract in which they said, we will close our eyes to all better offers after this point in time.

ZARROLI: There's also the question of how federal regulators will respond to the new deal. They helped broker the original merger, and today they said they'll stand by it. But they also gave themselves some wiggle room, promising to review any new offers that come in. In fact, allowing the deal to collapse would save the federal government a lot of money at a time when it's already absorbing many billions in new debt. Regulators may be publicly supporting the deal, but privately praying it fails. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.