WTF?

Wells Fargo and Wachovia agreed to a $15 billion merger that highlights the buyer's strong balance sheet and aspirations to expand its presence in the eastern US. The bold move casts doubt on the status of a transaction between Wachovia and Citigroup involving the former's banking and mortgage businesses announced last Monday. Citi, however, issued a strongly worded statement contesting the new deal. The Wachovia-Citi deal, engineered with the help of the FDIC, carries a price tag of $2.1 billion. Wells Fargo would pay 0.1991 of a share of common stock in exchange for each common share of Wachovia, a ratio that values Wachovia at $7 a share based on Wells Fargo's Thursday closing price. "This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," said Wachovia CEO Robert Steel in a press release.

Wells Fargo expects to face about $74 billion in losses and write-downs when it acquires Wachovia and its troubled portfolios loans of loans. Wells Fargo's top executives made the comments during a conference call with investors, and said the deal will close in this year's fourth quarter. Wells Fargo CFO Howard Atkins said his company doesn't know yet how many of those losses and write-downs it will take up front when the deal closes, and how many it will tack on to earnings reports over the coming quarters. Atkins said the combined Tier 1 capital ratio of the combined companies will be about 7.5% - or lower than Wells Fargo's current Tier 1 ration of 8.2%.

Citigroup said that a proposed bid for Wachovia by Wells Fargo violates an exclusivity agreement that Citi had with Wachovia. "Wells Fargo's conduct constitutes tortious interference with the Exclusivity Agreement," Citi said in a statement. Citigroup demanded that Wachovia and Wells Fargo abandon a $15 billion stock swap deal that was announced earlier in the day. Citi said it "has substantial legal rights regarding Wachovia and this transaction."

Wachovia is a carcass; Wells Fargo and Citi are just picking it over. Of course the Wells Fargo deal is much better for WB stockholders and better for shareholders. But mark my words: If this deal does not go through for Citi, Citi is a walking dead man.