Citi wins court order in battle for Wachovia

By Dan Wilchins

NEW YORK (Reuters) - Citigroup Inc said it won a court order late on Saturday blocking Wells Fargo & Co. from buying hobbled U.S. bank Wachovia Corp until the court rules otherwise.

Citigroup, which planned to buy Wachovia's banking assets for $2.2 billion, said New York State Supreme Court Justice Charles Ramos granted an injunction extending Wachovia's agreement to negotiate exclusively with Citigroup.

Citigroup and Wells Fargo are battling for control of sixth-largest U.S. bank Wachovia, which has been hit hard by bad mortgages amid turmoil in global credit markets, but has a large network of branches.

Citigroup, the largest U.S. bank, announced on Monday it had agreed to buy Wachovia's banking operations in a deal backed by the U.S. government. That deal did not include a signed merger agreement, but Wachovia did sign an agreement to only negotiate with Citigroup through Monday October 6.

On Friday, however, Wells Fargo said it had signed an agreement to buy the whole of Wachovia, including its asset management unit and retail brokerage, for about $15 billion, roughly seven times more.

Wachovia said early on Sunday morning that it believes its agreement with Wells Fargo is valid and proper, and is best for shareholders, employees and U.S. taxpayers.

"Citigroup is always free to make a superior offer to Wachovia," spokeswoman Christy Phillips-Brown said.

Citigroup said in its statement that it is prepared to continue negotiating with Wachovia, but that Wachovia may not speak to others.

Some lawyers believe that Citigroup could have a real case, noting the exclusivity agreement and the fact that Citigroup provided financial support to Wachovia last week.

"Those are clearly strong facts on Citi's side," said Morton Pierce, chairman of the mergers and acquisition group at law firm Dewey & LeBoeuf, on Friday. Dewey & LeBoeuf is not representing any of the parties in the transaction.

GOVERNMENT HELP

Citigroup, which has sustained about $60 billion of writedowns and losses during the credit crunch, planned to buy Wachovia's banking assets with U.S. help, including partial government guarantees on a $312 billion Wachovia loan book.

The deal is important for Citigroup Chief Executive Vikram Pandit, who is looking to turn around the ailing bank in part by focusing on stable businesses such as consumer banking.

Wells Fargo, the seventh largest U.S. bank by assets, has managed to remain consistently profitable during the credit crunch. Its bid would not require government backing.

Regulators said on Friday they had not looked at the Wells Fargo bid.

Under that bid, for each share of Wachovia, investors would receive 0.1991 of a Wells Fargo share, which is equal to $6.88 a share based on Wells Fargo's closing price on Friday of $34.56.

U.S. banks have been scrambling to build or buy branches, which allow them to raise money from depositors. In a credit crunch, deposit funding can be cheap compared to borrowing in bond markets.

Winning the Wachovia branches would help Citi bolster its relatively weak network of U.S. branches, which number about 1,000 compared with Wachovia's 3,300 and Wells Fargo's 3,400.

Wachovia is the latest casualty of a crisis that has led to shotgun sales of Bear Stearns Cos and Merrill Lynch & Co Inc, the near collapse of American International Group Inc, and the bankruptcies of Lehman Brothers Holdings Inc and Washington Mutual Inc.

(Additional reporting by Elinor Comlay and Jonathan Stempel, editing by Anthony Boadle)