Citi & Wells Settle Suit for $100M - Analyst Blog

Citigroup Inc. (C) and Wells Fargo & Co. (WFC) have decided to bury the hatchet associated with the Wachovia Corp. acquisition and move on. In order to settle all claims related to the lawsuit, Wells Fargo will have to pay $100 million to Citi.

The dispute started two years ago when Wachovia was struggling with mounting losses on its mortgage loans and was up for sale. Citi had originally agreed to buy Wachovia for $2.16 billion along with support from the Federal Deposit Insurance Corp. (FDIC). However, in less than a week, Wells Fargo made a much higher bid and without any support from the FDIC. Wells Fargo ultimately paid $12.7 billion for the Wachovia acquisition in 2008. 

The Wachovia purchase announcement was made by Wells Fargo three days prior to the expiry of Citi's agreement. A lawsuit alleging a breach of contract and interference was filed by Citi against Wachovia and Wells Fargo and Citi claimed for at least $60 billion in damages. 

The settlement value of $100 million is no significant amount for Wells Fargo and is substantially less than the amount originally claimed. The Wachovia acquisition has benefited Wells Fargo by substantially increasing its size and expanding its distribution network. The company is also progressing well with the Wachovia integration. Settling this dispute with Citi was a good choice for Wells Fargo to remove the legal overhang. 

On the other hand, for Citi, the nixing of the deal definitely curbed the expansion opportunities from which Citi could have benefited. However, in the past two years, Citi has significantly proceeded with its restructuring initiatives and targets to make the organization a leaner one. This compensation helped tangentially by fetching in some money for Citi. 

Both Citi and Wells Fargo currently have a Zacks #3 Rank, which translates to a short-term Hold rating and indicates no clear directional pressure on the shares over the near-term.

 
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