NEW YORK (AP) -- Federal officials continued their fervent quest Wednesday to reach an agreement between Citigroup and Wells Fargo over the fate of Wachovia Corp. - which could include the splitting up of the bank.
Discussions between the Federal Reserve, Citigroup and Wells Fargo continue, said a person familiar with the situation, adding that all options are being reviewed. The person spoke on condition of anonymity because of the sensitive nature of the talks.
According to a court transcript of a teleconference between Wachovia and Citigroup lawyers and U.S. District Judge Lewis Kaplan held Wednesday, the negotiations center on "a possible grand solution." That could involve splitting Wachovia between Wells Fargo and Citigroup.
"There are negotiations between Wells Fargo and Citi about a possible grand solution that would preserve the shareholder value for Wachovia as represented by the Wells Fargo deal, but that would involve not a single choice between Citigroup and Wells Fargo," said David Boies, a lawyer for Wachovia, according to the transcript.
After the battle for the Charlotte, N.C.-based bank moved to both state and federal court over the weekend, the parties agreed Monday to a cease-fire of all litigation at the urging of Federal Reserve officials. But that agreement expired at noon Wednesday without a resolution on the fate of Wachovia. Citigroup and Wells Fargo agreed Wednesday to extend the standstill until 8 a.m. EST Friday.
The extention of the standstill was apparently being pushed by the Fed. According to the transcript, Citigroup lawyer Gregory Joseph said, "This is a standstill that the Fed has insisted on because of concern as to what's going on in the market."
The extention gives the banks more time to work toward a mutual agreement, and thwarts a drawn-out brawl in court - at least for now - which is something Wachovia would like to avoid.
Jane Sherburne, general counsel for Wachovia, admitted the bank is "somewhat caught in the middle of this negotiation between Wells and Citi," according to the transcript. Sherburne said that Wachovia has "acknowledged to the Fed that we will facilitate in whatever way we can a negotiated settlement of this matter without escalating the issues in a litigation setting."
Citigroup came to the rescue of an ailing Wachovia when it agreed last Monday to buy its banking operations for $2.1 billion in a deal brokered by the Federal Deposit Insurance Corp.
Slammed over the past year by defaulting mortgages, Wachovia was in considerable trouble. Wachovia disclosed in court documents that it agreed to the acquisition "with the understanding that a seizure of its banking assets later that day by the Federal Deposit Insurance Corp. would occur" unless it accepted Citigroup's proposal.
Four days later, Wells Fargo stunned Citigroup by announcing that Wachovia's board had agreed to its $13.1 billion all-stock offer. Originally, the deal was valued at $15.1 billion, or $7 a share, but Wells Fargo stock has declined since it was announced.
The announcement by Wells Fargo sparked legal action by Citigroup, which charged violation of its exclusivity agreement with Wachovia.
Some analysts believe the delay in reaching a resolution could be due to an unwillingness by Citigroup to back down from its original deal. "Obviously Citi is not backing out," said Nancy Atkinson, senior analyst at Boston-based research firm Aite Group. "The longer this goes on, the more it looks like (a matter of) principle."
She added, "Citi is no longer playing a suitor, they are playing a spoiler. By dividing up Wachovia, neither one is getting to expand their territory."
Wachovia shares fell 19 cents, or 3.6 percent, to close at $5.06. Citigroup shares dropped 75 cents, or 5 percent, to $14.40, while Wells Fargo shares rose $1.30, or 4.3 percent, to $31.90.