Citi pulls out of Wachovia deal

Citi yesterday gave up on its attempt to take over Wachovia, ceding the ground to rival bidder Wells Fargo.

The bank said it broke off negotiations due to "dramatic differences" with Wells Fargo "in the parties' transaction structures and views of the risks involved". It now plans to launch a lawsuit against both Wachovia and Wells Fargo for breach of contract, but will not attempt to block the merger.

"Our shareholders have been unjustly and illegally deprived of the opportunity the transaction created," Citi said. Citi argues it had an exclusive agreement to take over Wachovia, which was broken when the other bank started negotiating with Wells Fargo.

Unlike the proposed merger with Citi, the $11.7 billion all-share Wachovia-Wells Fargo merger will not require any support from the Federal Deposit Insurance Corporation, Wachovia said. The Citi deal would have seen FDIC take $12 billion in stock and warrants in return for guaranteeing all but the first $42 billion of losses on a $312 billion loan pool, the first time FDIC has used its "systemic risk" powers to guarantee bank debt.

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