Wells Fargo Bank goes bargaining hunting in the mortgage meltdown embers

The US finance sector may well have creatored [John McCain's words, not Mr Mortgage's], but that hasn't stopped Investment Guru and billionaire investor Warren Buffett raked over the smoldering ruins and buying in big into Goldman Sachs, nor a $US15 billion ($19.3 billion) takeover of struggling mortgage lending specialist Wachovia by Wells Fargo Bank [with Warren Buffett in the background]. Not so fast says Citigroup, we had a deal here.
And a New York judge agreed with them in principal, and has blocked the sale pending review of a pre-existing agreement giving Citigroup exclusive rights to negotiate a purchase of Wachovia's banking operations for $US2.2 billion. [What a deal!]
The Citigroup-Wachovia deal was brokered by the Federal Deposits Insurance Corporation, which had agreed to take on potentially hundreds of billions of dollars of future Wachovia loan losses to ensure it went ahead.
The deal was topped on Friday when Wells Fargo, whose biggest shareholder is Mr Buffett, countered with a seven times higher offer that required not a single dollar of support from beleaguered US taxpayers, who last week footed the bill as Congress signed off on a $US700 billion bailout of Wall Street finance and banking firms crippled by the credit crisis.
But the buy price is not the only consideration, as the FDIC supportedthe original Citigroup-Wachovia deal it brokered because under the terms of the Citigroup-Wachovia deal, the FDIC had agreed to take onboard all Wachovia loan losses above $US42 billion.
On Friday FDIC chairman Sheila Bair said she would review all proposals that were on the table and work with the primary regulators of all three banks.
Citigroup, which is reportedly seeking $US60 billion in damages, is counting on the courts upholding the agreement that forbade Wachovia from entering sale negotiations with other parties until after October 6.
The orders issued in the New York Supreme Court on Saturday by Justice Charles Ramos now extend that agreement until further court action between the parties, which are the third largest (Citigroup) and fourth largest (Wells Fargo) banks on Wall Street by stock market value.
In the end, Citigroup may be snookered by a provision in the Wall Street bailout legislation that raises questions about the enforceability of contracts relating to pending acquisitions in which the FDIC is involved.
If it fails, Citigroup will be left with no alternative but to make a better offer.
Wells Fargo had been in the hunt for some time, but a week ago dropped off, leaving Citigroup the only suitor and in a powerful position to squeeze federal authorities for support. But after consultations with its advisers JPMorgan Chase, and Wells Fargo secretly re-entered negotiations with Wachovia late last week and pulled off a stunning deal that caught Citigroup by surprise.
Let's see what happens next, but both Citigroup and Wells Fargo both know that Wachovia is a bargain, especially with the US tax offsets on offer from the bailout package.