In the case of Wachovia (WB) - Wells Fargo (WFC), it seem far more prudent, if not an absolutely necessity, to assess the Citigroup (C) / FDIC aspect, rather than focus on the dynamics of the WB-WFC transaction. First and foremost, it must be pointed out that this publication has no point of reference for this particular type of scenario (or anything resembling this scenario), despite the banking database being the largest in our database. This situations is, to put it mildly, unchartered waters.
That being said, the bottom line is that Wachovia will be acquired one way or the other and none of the current legal wrangling and potential federal regulatory issues will in any way stop and/or delay this outcome. Although it is nearly impossible to foresee the precise outcome of Citi's legal claims and the subsequent negotiations in progress between the involved parties and the FDIC, the initial impression is that a mutually satisfactory agreement will be reached in fairly short order. Whether this involves dividing WB's regional branches between WFC and Citi (as has been widely speculated) or compensating Citi via other means, expediting WB's fate is clearly in the best interests of the company's shareholders, its costumers and, perhaps more importantly, the federal government.
The one suggested outcome that does not currently seem likely is Citigroup making a superior offer for WB, as the company is clearly not in a position to ultimately outbid WFC. Thus, Citigroup has very little leverage under the current circumstances, especially when factoring in the recently passed federal bailout legislation which may render the FDIC's arrangement with WB as essentially moot. In other words, if Citi hopes to see its agreement bear any fruit, it will have to rely heavily on the fed's relatively weak bargaining position and the determination of WB-WFC to avoid becoming entangled in a drawn-out legal dispute.
Again, this is an unprecedented situation taking place under extremely unusual circumstances, so it is extremely difficult to project a trouble-free deal involving WB and WFC. However, the current environment and details of the agreement suggest that WFC will ultimately succeed in acquiring most of, if not all, of WB with little federal resistance and/or legal challenge from Citigroup. This is, of course, subject to change very quickly and decisively over the coming weeks and months.
Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.