Toad680

Citi Examines Its Carrots and Sticks

One interesting aspect to this is that regulators brokered the Citi deal and Wells walked away at the last minute. Only later after the bailout was likely, mark to market eased and takeover taxation benefits emerged did Wells step back in.

If they think more banks are going to see this kind of trouble and want to maintain credibility in the bidding process, don't regulators have to enforce their first two bidder auction? You ask banks to step up and take on a great deal of risk, but don't actually deliver the reward? The next time this happens, how many won't bid? Or of those that do, will they come with their best bid?

One could also argue that Wachovia might have gone bust had it not been for the interim liquidity provided by Citi. In a normal bidding war, this might be fair play by Wells. But somehow it seems unethical to me for Wells to now take WB after the collapse has been averted and the rules have changed.

I would be surprised if Citi took this under the original terms. But I think regulators damage their credibility if they let Wells walk away with Wachovia now that the risks are a lot lower.