naked capitalism

The Fed is pressuring Citi and Wells Fargo to settle their dispute over Wachovia. The assumption that there is a way to divvy the carcass that will leave each side feeling they got more than half a loaf. But the push is on to reach an agreement in principle before the US markets open, and with many issues to be resolved (and a lack of good will between the two banks), it will be a struggle to wrap this up in time.

Note that neither bank has abandoned its push on the litigation front.

Update: Reader Tom Lindmark correctly pointed out in comments that since Wells reached a private deal with Wachovia, why do the powers that be think they can intercede?

From the Wall Street Journal:

Under pressure from the federal government, Citigroup Inc. and Wells Fargo & Co. were locked in negotiations Sunday night aimed at trying to defuse the battle for Wachovia Corp., according to people familiar with the situation.

In a sign that U.S. officials are concerned about the increasingly volatile situation, officials from the Federal Reserve were pushing hard for Citigroup and Wells Fargo to reach a compromise. That effort could result in essentially carving up the Charlotte, N.C., bank between its two suitors, these people said.

Under the leading plan being discussed Sunday night, Citigroup and Wells Fargo would divvy up Wachovia’s network of 3,346 branches along geographic lines, with Citigroup getting Wachovia’s branches in the northeast and mid-Atlantic regions and Wells Fargo taking those in the Southeast and California, according to people familiar with the talks. Wells Fargo would take over Wachovia’s asset-management and brokerage units.

Unlike Citigroup’s original agreement to take over Wachovia, in which the Federal Deposit Insurance Corp. agreed to shoulder potentially hundreds of billions of dollars in toxic loans, the plans being discussed Sunday night don’t entail either buyer receiving financial assistance from the U.S. government, according to a person briefed on the talks.

Even as negotiations to split up Wachovia were proceeding, lawyers for Wachovia and Citigroup were sparring in federal and state court in New York on Sunday afternoon. Wachovia asked a U.S. district court judge to overturn a Saturday night ruling by a state-court judge that prods Wachovia to go back to the negotiating table with Citigroup. Citigroup contends Wachovia reneged on a binding $2.1 billion deal for Wachovia’s banking business. Meanwhile, a state appeals court on Sunday night reversed the state court’s order from the night before….

Regulators and bankers are scrambling to quickly end the drama in part out of concern that if Wachovia remains in limbo when U.S. markets open Monday morning, it could further spook already jittery investors and bank customers.

Update 3:30 AM: As predicted, there will be no deal before the market opening tomorrow. From an updated version of the Wall Street Journal story:

The talks ended late Sunday night with no resolution, but were expected to resume Monday morning, according to a person familiar with the matter.