Citigroup (NYSE: C) has been engaged in a dispute with Wells Fargo (NYSE: WFC) for nearly two years now. What is it over? The bank formerly known as Wachovia, of course.
To finally settle the dispute, Wells Fargo & Co. has agreed to pay $100 million to Citigroup Inc that originated from its acquisition of Wachovia Corp. in October 2008, at the height of the financial crisis. During that time, Wachovia was quickly nearing he brink of collapse from bad real estate loans when it initially agreed to be bought by Citigroup in a deal supported by the U.S. government. Days later, Wells Fargo swooped in with a sweeter deal and snatched Wachovia away from Citigroup. An irate Citi sued Wells soon thereafter, leading to the settlement which was announced.
In the lawsuit Citigroup filed in the New York State Supreme Court in Manhattan, they accused Wells and Wachovia of breach of contract and sought $60 billion in damages. When Citigroup lost out on Wachovia, which it saw as a gateway to expand in the south, it provided a window into Citigroup’s own weak position at the time. Soon after that deal collapsed, Citigroup also broached the point of bankruptcy as losses from bad investments mounted.
The $100 million settlement represent a small fraction of the earnings and cash hoard of San Francisco-based Wells Fargo, which is one of the largest banks in the U.S. Wells earned $3.15 billion in the third quarter and had $16 billion of cash on its balance sheet as of Sept. 30. Its shares edged up 2 cents to $27.53 in afternoon trading Friday.
In a time when Citi continues to shed assets, this settlement will provide a useful one-time cash flow and ultimately a good deal for Wells too. Wells, the venerable San Francisco based bank lacked a significant presence on the east coast, and now has that in the former Wachovia franchise.
