Citi Sues Wells Fargo, Wachovia for $60 Billion

Wachovia would have failed last Tuesday if Citigroup had not heeded the government's request to help, Citi said in a press release announcing the lawsuit.
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Updated from 12:40 p.m. EDT


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would have failed last Tuesday if Citi had not heeded the federal government's request to step in and buy much of the ailing bank.

The New York bank made the claim Monday in a statement announcing it had filed a $60 billion lawsuit against Wachovia and

Wells Fargo

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for breaching an exclusivity agreement by trumping its $2.16 billion deal struck Monday with a $15.1 billion agreement reached Friday. Citi said Wells Fargo "walked away" from a deal before federal authorities called on Citi to help.

Citi's purchase was contingent on help from the Federal Deposit Insurance Corp. Citi was assuming responsibility for up to $42 billion of losses on $312 billion of Wachovia loans identified as potentially troubling. The FDIC would backstop the rest. Citi also was not buying Wachovia's securities and asset management units. Wells Fargo's offer was for the full company and included no help from the federal government.

"This was always a deal Citi wanted rather than one we needed," Citi said in a statement announcing the lawsuit. "We were and remain very excited about this transaction and how it will benefit the clients and shareholders of Citi and Wachovia, as well as help preserve the stability of the financial system. The Citi/Wachovia transaction would have been signed and announced on Friday, Oct. 3 if it had not been subverted by the unlawful conduct of Wachovia, Wells Fargo, and their officers and directors and outside advisors."

Citi reiterated that it had been providing liquidity support to Wachovia since its deal was announced.

Wachovia said it had not received a lawsuit. Wells Fargo declined to comment.

The suit seeks $20 billion in compensatory damages and $40 billion in punitive damages. It comes after Citi won one and lost another battle in legal wrangling over the weekend.

A New York State appeals court vacated a lower court's ruling in Citi's favor, providing emergency injunctive relief that extended the exclusivity agreement with


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. Wells Fargo said at the time it will continue working toward the completion of its acquisition of Wachovia.

"We are pleased that the unfounded order entered (Saturday) has been vacated," Wells Fargo said in a statement late Sunday. "Wells Fargo will continue working toward the completion of its firm, binding merger agreement with Wachovia."

On Saturday, Justice Charles Ramos of New York State's Supreme Court temporarily blocked Wells Fargo's planned purchase of the Charlotte, N.C.-based Wachovia.

Meanwhile, the

Wall Street Journal


Federal Reserve

officials were pushing for Citigroup and Wells Fargo to reach a compromise. The effort could result in carving up Wachovia between its two suitors, the


reports, citing people familiar with the situation.

Under a plan being discussed Sunday night, Citigroup and Wells Fargo would divide Wachovia's network of 3,346 branches along geographic lines, with Citigroup getting Wachovia's branches in the Northeast and mid-Atlantic regions and Wells Fargo taking those in the Southeast and California. Wells Fargo also would take over Wachovia's asset-management and brokerage units, the



The plans being discussed Sunday night don't involve either Citigroup or Wells Fargo receiving financial assistance from the U.S. government, according to the



The talks ended late Sunday with no resolution, but were expected to resume Monday morning.