The proposed purchase would give Wells Fargo a strong branch presence on the East Coast, a major gap in its network. U.S. banks have been scrambling to boost their branch networks to allow them to raise money from depositors since the credit crunch has made borrowing in bond markets increasingly expensive.
Wells is buying the whole of Wachovia, including its retail brokerage Wachovia Securities, and its asset management unit, Evergreen. Citi had just bid for Wachovia's banking assets.
However, Wells Fargo may not acquire Wachovia without a fight. Citigroup is considering its options and may file a lawsuit to break up the Wachovia-Wells Fargo deal.
Citigroup said it had an exclusivity agreement with Wachovia to prevent them from finding other possible buyers, and statements from the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corp. appear to favor the Citigroup deal.
According to people familiar with the matter, Citigroup officials didn't learn about Wells Fargo's offer until 2 a.m. New York time Friday. Officials at the investment bank are up in arms because they made their bid for Wachovia's banking assets after much prodding from the Fed.
Citigroup had agreed to purchase only Wachovia's bank deposits, not Wachovia's investment bank, but Wells Fargo has agreed to buy the entire entity.