Judge Blocks Wells Fargo Takeover of Wachovia

You knew this was coming the moment that Citigroup claimed that that it had exclusivity to deal with Wachovia once it was announced that Wells Fargo put together a sweetened deal that eclipsed Citi's bid.

New York State Supreme Court Justice Charles Ramos issued the order late Saturday, saying that Citigroup and Wachovia must appear before him on Friday, Citigroup said, adding that the order was granted over the objection of Wachovia.

In a deal struck last Monday with the assistance of the Federal Deposit Insurance Corporation (FDIC), Citigroup had offered to take over the Wachovia's retail banking operations for $2.2 billion.

But four days later, Wells Fargo said it was buying all of Wachovia - including its asset-management business - for approximately $15.1 billion in stock.

The battle also has implications for taxpayers.

The Citigroup offer had come with a backstop from the Federal Deposit Insurance Corporation (FDIC), would cover any losses on Wachovia's $300 billion loan portfolio beyond the first $42 billion. The Wells offer does not ask for FDIC assistance.

Wachovia spokeswoman Christy Phillips-Brown said in a statement the company believes its agreement with Wells Fargo is "proper, valid and ... in the best interest of shareholders, employees and the American taxpayers," the Associated Press reported. She said Citigroup is free to make a better offer to Wachovia under that agreement.

As of Friday, Citigroup still had support of industry regulators. "The FDIC stands behind its previously announced agreement with Citigroup," Federal Deposit Insurance Corporation Chairman Sheila Bair said in a statement, adding that it would pursue a resolution with all three companies.

This mess will end up costing both banks millions of dollars in fees to address the case, but in the end, I think Wells Fargo will win out but have to pay millions to Citigroup in the process to acquire Wachovia, even though the FDIC is backing Citigroup's offer.

Depositors at any of the banks involved aren't going to see any differences and the FDIC insurance limits were increased to $250,000 by the bailout bill, which may help forstall further runs on banks (though the first bank run of the year came when Sen. Charles Schumer initiated one when publicly questioning the solvency of IndyMac).