Wells Fargo will pay Citigroup $100 million to settle Wachovia lawsuit

Two banks that clashed over dueling deals to buy Wachovia Corp. announced a $100-million legal settlement Friday.

Wells Fargo & Co. will pay Citigroup Inc. to resolve all claims in the dispute, the banks said in a joint statement. The payment caps a feud that emerged at the peak of the 2008 financial crisis.

“We are glad to put this matter behind us, and we look forward to our two institutions working together constructively in the future,” the companies said in the statement.

The settlement is far less than the more than $60 billion in damages that Citigroup initially sought when it accused Wells Fargo of interfering in its deal to purchase Wachovia. Wells Fargo ultimately bought Wachovia for $15 billion at the end of 2008.

“That’s not pocket change, but for these kind of entities, it’s not a whole lot of money,” said Carl Tobias, a law professor at the University of Richmond. Tobias said the agreement made sense because it allowed both banks to stop shelling out expensive legal fees after more than two years of litigation.

In September 2008, as Charlotte, N.C.-based Wachovia nearly collapsed under the weight of its soured mortgage portfolio, Citigroup agreed to buy most of its banking operations for $1 a share. As part of the deal, the government agreed to cover losses on some of Wachovia’s most troubled assets.

But days later, Wells Fargo swooped in with a rival bid that offered to pay $7 a share and required no loss-sharing agreement with the government. Both banks fired off lawsuits, and the Federal Reserve attempted to broker a truce.

“We kept the system going. We kept Wachovia going. We need to be paid for that as a company,” an angry Vikram Pandit, Citigroup’s chief executive, told employees at a town hall meeting during the spat.

Citigroup and Wells Fargo came close to an agreement to carve up Wachovia’s operations, according to suggestions in e-mails that McClatchy Newspapers obtained through a Freedom of Information Act request. But on Oct. 9, 2008, Citigroup instead allowed Wells Fargo to move forward with its deal, while Citigroup continued to pursue legal damages.

San Francisco-based Wells Fargo is now a coast-to-coast bank with $750 billion in deposits, behind only Charlotte-based Bank of America Corp. Citigroup remains No. 4 with less than half that amount.

Many observers believe that losing out on Wachovia further shattered investors’ confidence in ailing Citigroup. Less than two months later, the New York bank needed its own injection of government aid.

Rothacker writes for the Charlotte Observer/McClatchy.