Friday, October 03, 2008

Was Citigroup Stealing?

Citigroup’s (C) attempt to take over Wachovia (WB) seems to have been trumped by Wells Fargo (WFC). Wachovia has been declared a weak bank by the current standards of financial hysteria. Given that we all believe the domino’s are falling over it was supposedly Wachovia’s turn. Citigroup says it answered the call from the regulator and was not actively shopping.

Now it says that it will sue for breach of deal making decorum. Wachovia managed to generate a better deal for itself. This is what their management is supposed to do. Citigroup is playing cute and complaining. It was playing the role of reluctant saviour catching a falling knife. When in fact it was catching a touch down pass.

Financial markets have lost their way. Baby and bath water are being thrown out. Regulators have taken the policy decision of guiding weak assets into strong. But do regulators have an obligation to the marketplace to ensure shareholder are not cheated in valuations. Right now an independent third party offer says the Citigroup deal should be beaten. Wells Fargo says Wachovia is worth more. Wells Fargo says it does not need taxpayer support which is a relief.

What does this say about the back room machinations of FDIC and their relationship with individual banks? Are they behind the scene king makers using the current hysteria and confusion as cover? Is the FDIC driving the get away car?

Watch Citigroup’s lawsuit. If it starts to claim substantial economic loss by not getting the deal than they were stealing. If the Wells Fargo deal is not allowed than Wachovia shareholders have been cheated.