The Federal Reserve Board moved into the eye of the Wachovia economic and legal storm Monday and spread calm, brokering a three-way deal with Wachovia, Wells Fargo and Citigroup to temporarily abandon the surge of court filings to seek agreement on saving Wachovia. The standstill adopted will expire at noon Wednesday. The fight over Wachovia escalated earlier Monday with Citigroup filing suit in New York state court seeking $20 billion in compensatory damages and $40 billion in punitive damages from Wachovia, Wells Fargo and each of their directors. Citigroup’s Complaint alleges that Wells Fargo and the various board members tortiously interfered with its $2.1 billion deal made Monday to purchase Wachovia’s banking assets. Friday morning Wachovia announced a $15 billion agreement for sale of all of Wachovia to Wells Fargo. Citigroup also filed a breach of contract count directly against Wachovia claiming violation of an exclusivity agreement. Wachovia and Wells Fargo counter-sued in federal court in New York, claiming that Citigroup’s effort to buy Wachovia’s banking operations is precluded by the financial bailout legislation signed into law on Friday.
The Citigroup lawsuit sheds stark light on the unprecedented turmoil and mad rush of events triggered by the tempest in the global financial markets. According to the Complaint, Wachovia had to reach a deal to sell its banking assets to Citigroup last Monday or face having them put in FDIC receivership Tuesday morning. Citigroup credits itself with saving Wachovia from FDIC seizure. Citigroup and Wachovia executives allegedly met Thursday to finalize terms, and then “teams of lawyers worked through the day and night on Thursday to finalize definitive deal documents.” The lawsuit claims that Citigroup was left in the dark Thursday night as federal regulators told Wachovia that Wells Fargo wanted to discuss an acquisition offer. The “teams of lawyers” kept drafting until 2 a.m. when Wachovia called a halt to the work. At 2:15 a.m., the suit alleges, Wachovia’s CEO informed Citigroup that an agreement had been made with Wells Fargo, and that Wachovia would refuse all further talks with Citigroup.