Friday, October 03, 2008

Is Wachovia Worth Fighting Over? Goldman Sachs Sure Thinks So

Today Wachovia (WB) announced that it has secretly agreed to a new buyout offer from Wells Fargo WFC), presumably without informing its previous suitor Citigroup (C).

``Citi has substantial legal rights regarding Wachovia and this transaction,'' the New York-based company said in a statement. ``Wachovia's agreement to a transaction with Wells Fargo is in clear breach of an exclusivity agreement between Citi and Wachovia.''

Yeah, if I were Citi I'd be mad too. Vikram Pandit must be fuming, "How dare they hook up with my prom date!" So what gives? What makes Wells Fargo think it can supercede Citi's offer? Simple. Wachovia's CEO, Robert Steel, is a Goldman Sachs (GS) alum and former colleague of Treasury Secretary Henry Paulson. Goldman seems to be positoning itself as broker-of-record for the project of saving the U.S. financial system, so what Goldman wants, Goldman gets.

In a time when our Treasury Secretary seeks financial powers far beyond what any government official has ever possessed, blowing off a merger deal already approved by the FDIC looks like no big deal to a Goldman alum. If the FDIC's Sheila Blair insists on standing behind the Citi deal, Secretary Paulson may make it tough for her to borrow the money she'll need to replenish the FDIC's insurance reserves. The Wells deal actually does the FDIC a favor by eliminating the need for a guarantee of Wachovia's deposits, thus freeing the FDIC to shore up other troubled banks.

Goldman guys play for keeps!

Nota bene: Anthony J. Alfidi does not hold any position in WFC, WB, C, or GS at the time this commentary was published.