When Wells Fargo & Co. swooped in to purchase the troubled Wachovia Bank two years ago, it incurred the wrath of Citigroup. Now, Wells Fargo will be paying quite a bit more.
Wells Fargo agreed on Friday November 19 to pay Citigroup $100 million to settle the dispute that arose when Citigroup accused Wells Fargo of breach of contract.
In October of 2008, Wachovia was dangerously close to closing its doors. At the height of the financial crisis, Wachovia had been severely weakened by bad mortgages and real estate investments gone sour.
Citigroup stepped in an offered to purchase Wachovia. The deal was approved, and Citigroup had received the backing of the federal government for the pending sale.
Just a few short days later, Wells Fargo stepped in and made an offer to Wachovia that trumped Citigroup’s original offer, and Wachovia approved the sale. Citigroup, insisting that Wahovia had reneged on an approved deal, sued both Wells Fargo and Wachovia for breach of contract, was seeking $60 billion in damages.
Just weeks after Citigroup brought suit, their own financials struggles were brought to bear. Reeling from its own bad investments and underperforming loans, Citigroup ended up taking $45 billion in bailout money from the U.S. government. As of today, the federal government still owns 12% of Citigroup.
The settlement amounts to a fraction of the amount that Citigroup was originally seeking, and for Wells Fargo, it puts an end to the purchase of Wachovia. While it may have cost Wells Fargo an additional $100 million to finally close the books on the deal, overall it’s a drop in the bucket, considering that Wells Fargo earned over $3 billion in the third quarter of 2010.
UPDATE: http://aomid.com/wells-fargo-purchase-of-wachovia-to-cost-an-additional-100-million/224466/ November 22, 2010