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Who Gets Wachovia?


Wells Fargo, Citibank fight over troubled bank's remains.

Last week, by its own account, Wachovia (WB) was a breath away from failing. Today, 2 of the 4 biggest banks in the country are literally suing each other for the right to buy the troubled Charlotte-based lender.

In what already seems like ancient history, just weeks ago investors fretted over Wachovia's fate in the wake of Washington Mutual's dramatic collapse into the waiting arms of JPMorgan Chase (JPM).

Weighed down by a toxic balance sheet of souring mortgages, Wachovia was in trouble. A stealth bank run had begun, as firms and consumers alike hoarded cash.

Then, to the surprise of many, Citigroup (C) teamed up with the FDIC to save Wachovia from the abyss. Toting a federal backstop for its quickly eroding loan portfolio, Citi snatched up Wachovia's retail branches and various other operations for a mere $2.1 billion.

The move was surprising: Citi has plenty of troubles of its own. Once the largest financial company in the world, Citi has become a poster child for mortgage and credit troubles - it didn't need to go out and buy any more.

At the time, many puzzled over Wells Fargo's (WFC) reluctance to step into the fray, as Wachovia's footprint out East seemed a perfect fit with Wells' strong presence in the West.

But then last Friday, in a stunning development, Wells stepped in with what appeared to be a far superior offer. Rather than dumping a chunk of Wachovia's risky loan portfolio on taxpayers via the FDIC, Wells not only upped the purchase price to $15 billion, but shunned government money to complete the transaction.

You could almost hear the lawyers licking their chops for high drama in the New York courts.

Citi claimed Wells had unfairly infringed on its right to buy Wachovia, that their agreement prevented other suitors from upping the ante.

Wells, for its part, found a loophole, asserting that the newly minted bailout package -- just hours old -- contained a clause allowing it to make a legal counteroffer.

Accusations flew, motions were filed, and judges, courts, attorneys and bankers dug in for a bloody fight.
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