WachFargovia Bank?

He said. She said. Yup, it's a fight by CitiGroup and Wells Fargo for Wachovia. I remember when Wells Fargo swallowed up First Interstate Bank in the 90s, and it was a big mess combining accounts and computer systems (during which time deposit amounts could mysteriously increase or decline), but I'm sure technology has improved since then. From a Bloomberg story:

- Wells Fargo & Co. offered $15 billion for Wachovia Corp., setting up a contest with Citigroup Inc. for control of the embattled North Carolina lender.

Citigroup demanded Wells Fargo abandon the takeover, claiming it breaches an exclusive deal reached earlier this week in which the New York-based lender agreed to buy Wachovia's banking operations for $2.16 billion with government help.

Well Fargo's surprise offer for Wachovia, run by former U.S. Treasury official Robert Steel, may lead to a face-off with federal regulators and a bidding war with Citigroup Chief Executive Officer Vikram Pandit. The bank may take legal action to block the deal, and a person with knowledge of the deliberations who also said Citigroup may increase its offer..

Buying Wachovia would give Citigroup the third-biggest U.S. bank network and cement its status as the nation's largest lender by assets. A final decision on whether to raise the bid hasn't been made, according to the person, who declined to be identified because the deliberations are private...

Citigroup provided a copy of an exclusivity agreement dated Sept. 29 that says Wachovia won't seek or help new bidders. The document is signed by a Wachovia officer, though the name and title weren't included...

Wells Fargo, whose biggest shareholder is billionaire Warren Buffett's Berkshire Hathaway Inc., may have been helped in its bid by the issuance of an IRS notice Tuesday that makes Wachovia's loan losses more valuable as tax deductions.

``The pronouncement, in effect, allows Wells Fargo to deduct, without limitation, the loan losses and bad debt deductions that Wachovia sustains following the acquisition,'' said Robert Willens, a certified public accountant who analyzes how accounting and tax rules affect Wall Street. That's a change from more stringent limits, he said.

``It's possible that the cost of the deal to Wells will be entirely offset with tax savings resulting from the relaxation of this rule.''

Buffett said in an interview with CNBC that tax law changes had made the deal more attractive. ``Wachovia shareholders will get a lot more money,'' Buffett, 78, said...

``This is a franchise that Wells Fargo wanted and this is one they didn't want to get away,'' said Mark Morgan, senior analyst at Thrivent Financial for Lutherans in Minneapolis. Thrivent held 1.8 million Wells shares as of June 30, according to Bloomberg data. ``This provides an opportunity for Wells Fargo to expand in the eastern U.S., particularly in the Southeast, in markets they've wanted to be in.''

Buying Wachovia detours from the strategy outlined by Wells Fargo Chief Executive Officer John Stumpf, 55, who has said he prefers smaller acquisitions with less risk that would fill gaps in the existing branch network. After the combination, the bank would have $1.42 trillion in assets, which may rank third in the U.S. depending on what other bank mergers are completed. All told, the bank would have $787 billion in deposits and 10,761 branches in 39 states.

Citigroupovia

With all the banking mergers, someone should really come up with an online game to help name these new behemoths. For example, Citigroupovia or CitiWach? JPWamu or JMutualMorganWashington? On a more serious note, however, there are concerns that the costs for all types of lending products will likely rise with so much money concentrated in few hands.

Sadly, I remember talking with a Senior Economist from Wachovia about 18 months ago who was pretty confident that the worst was behind us. His wife is an investment banker, so I'm sure there's some stress in that household! From a New York Times story:

Citigroup will acquire the banking operations of the Wachovia Corporation, the Federal Deposit Insurance Corporation said Monday morning, the latest bank to fall victim to the distressed mortgage market.

Citigroup will pay $1 a share, or about $2.2 billion, according to people briefed on the deal.

The F.D.I.C. said that the agency would absorb losses from Wachovia above $42 billion and that it would receive $12 billion in preferred stock and warrants from Citigroup in return for assuming that risk.

“Wachovia did not fail,” the F.D.I.C. said, “rather it is to be acquired by Citigroup Inc. on an open-bank basis with assistance from the F.D.I.C.”

Under the deal, Citigroup will acquire most of Wachovia’s assets and liabilities, including $400 billion in deposits and will assume senior and subordinated debt of Wachovia, the F.D.I.C. said. Wachovia Corporation will continue to own the retail brokerage firm AG Edwards and the money management arm Evergreen...

The sale would further concentrate Americans’ bank deposits in the hands of just three banks: Bank of America, JPMorgan Chase and Citigroup. Together, those three would be so large that they would dominate the industry, with unrivaled power to set prices for their loans and services. Given their size and reach, the institutions would probably come under greater scrutiny from federal regulators. Some small and midsize banks, already under pressure, might have little choice but to seek suitors.

Wachovia has been hurt badly by its 2006 purchase of Golden West Financial, a California lender specializing in so-called pay-option mortgages. The bank also faced mounting losses on loans made to home builders and commercial real estate developers, and its acquisition of A. G. Edwards, a retail brokerage firm, turned out to be problematic. In June, Wachovia’s board ousted G. Kennedy Thompson, the bank’s longtime chief executive...

As the credit crisis has deepened, a consolidation in the financial industry that analysts have predicted for years seems to be playing out in a matter of weeks.

The impact will be felt on Main Street, Wall Street and in Washington. While the tie-ups may restore confidence in the industry, they also could leave a handful of big lenders to determine fees and interest rates on everything from home mortgages to credit cards to checking accounts. Some small and midsize banks may be unable to compete with these behemoths...

Both Citigroup and Wells Fargo were deeply concerned about absorbing Wachovia’s giant loan portfolio, which is littered with bad mortgages, these people said. Bankers had little time to assess the risk.

Citigroup executives considered Wachovia a make-or-break deal for their consumer banking ambitions. With Wachovia, Citigroup would gain one of the pre-eminent retail bank operations after struggling to build one for years. It will also give Citigroup access to more stable customer deposits, allowing it to rely less heavily on outside investors for funds.

I've been banking with Wells Fargo since 1994 and, in general, have been very happy with their services and ATM network. Plus, once you have enough accounts you can tap a personal banker to help get rid of those pesky fees!