After Wachovia agreed to be bought by Wells Fargo on Friday, the FDIC's Sheila Bair put out a press release saying that her agency "stands behind its previously announced agreement with Citigroup".
Except, it wasn't quite as simple as that. During that whole week, according to the affidavit of Wachovia's Bob Steel, Wachovia had been negotiating in good faith with Citigroup; there was no contact with Wells Fargo. Until, that is, quite late on Thursday night:
On October 2, 2008 at approximately 7:15pm, I received an unexpected call from Chairman Bair. She asked if I had heard from Mr Kovacevich. I assured her I had not spoken to him since the initiation of the negotiations with Citi. She advised me that it was her understanding that he would be calling me to propose a merger transaction that would result in Wachovia shareholders receiving $7.00 per share of Wells Fargo common stock and encouraged me to give serious consideration to that offer.
At that point on Thursday, the agreement between Wachovia and Citi was all but nailed down; they'd even scheduled a time to sign it -- 2pm on Friday. Of course, that never happened. And it looks very much, from Steel's affidavit, that Bair had been working behind the scenes with Kovacevich and the crew from Wells Fargo, putting together a rival deal.
Which puts her public statement on Friday morning into a bit of perspective: yes, she might stand behind the agreement with Citi. But left unsaid was her clear support for a new deal with Wells.
This isn't so much ad hoc policymaking as post hoc policymaking. The agreement with Citi was put together over the course of a very hurried Sunday, because Wachovia would have to have declared bankruptcy on Monday morning if it didn't have a deal. As Jamie Dimon would say, buying a house and buying a house on fire are two different things. Citi bought a house on fire, thereby saving it from burning to the ground. And then Mr Kovacevich waltzed in, decided that, on reflection, he rather liked the look of the house after all, and used a provision of the newly-enacted TARP legislation to gazump the hapless Mr Pandit.
It's easy to see why Citi's rather aggrieved about the whole deal; it's harder to see why Bair would so drastically burn her bridges with 399 Park. If she ever wants to work with Citigroup again, when next she needs to rescue a bank in trouble, I suspect she'll get an extremely frosty reception.
This article has 14 comments:
This new deal dose not involve Fed bail out and we all should be cheering for Shiella for doing a great job.
She is one of the few very very smart banker who is working behind the scene and she would not walk away to millions of dollors of perks like these private greedy bankers.
THANKS TO SHIELA FOR THE GREAT JOB!!!!
How can one possible think that giving Citi bank (who is themselves very shaky at best) billions of dollars in our tax money so that they can buy Wachovia is the right way to proceed when Wells is willing to do it for nothing and assume Wachovia's debt load in-house within the framework of the legislation just passed.
Thank god she won't have a job after this year!
Wonder who she's going to be working for?
Citi Bank per chance?
A ticked of TAXPAYER
Milt
If your not part of the solution then your part of the problem!
What Sheila Bair did was highly unethical, City will have to be compensated. This kind of behind the back shady dealing remind me of a corrupt third world country,
This sets a nasty precedent, that might complicate things in the future, and create even more jobs for lawyers.... and increase cost of doing business...
If you really beleive that " C is one of the most prominent and important financial institutions on the street" is right then i would rush out and invest in a hurry!
But if you don't want to lose your a** then only borrow it to sell short!
C's got about as much of a chance of survival as Countrwide as the shake out continues mabey even less!!!
Forget trickle down economics benefiting Joe six pack, this is trickle down politics benefiting Sheila Chardonay and Henry Hennessy and some intimate friendsThese recent fire sale exploits could be compared to Mrs. O'Leary's cow's exploits on an ill-fated Chicago evening. Mrs. O'leary's cow had one opportunity to get-it-right. Trickle dowm immediately after knocking over the lantern. Sheila Chardonnay's, Henry Hennessy's, and Kegger Congress' exploits can be compared to is Mrs. O'Learys cow taking a trickle on the broadside of the barn after the barn was fully engulfed in flames and subsequently being given credit and praise for trying to save Chicago. I don't think Mrs. O'Leary's cow could have hit the broadside of the barn even with its best efforts (trickle down you know!). Likewise, I don't think the Congress, regulatory agencies, nor cabinet departments, even with their best efforts and focus, could hit "the broadside of a barn" even with the barn adequately lit by firelight. (Credit USN&WR editor Brian Kelly for Mrs. O"Leary's cow's exploits)
(1) It only applies if companies are bought as a whole not the case in Citi's offere.
(2) Citi does not have a lot of profits to write-off the losses again :(.