Officials from the Federal Reserve and Treasury are involved in the talks while executives of Charlotte, North Carolina-based Wachovia have been excluded, the Journal reported, citing people familiar with the situation. Citigroup would get Wachovia's branches in the northeast and mid-Atlantic regions and Wells Fargo may take the Southeast and California, the newspaper reported. The asset-management and brokerage units would go to Wells Fargo.
Citigroup, the biggest U.S. bank by assets, is bidding for Wachovia while trying to rebuild after $61 billion of losses tied to the collapse of mortgage markets. The bank wants to buy parts of Wachovia for about $2.16 billion, while Wells Fargo is bidding about $15 billion for the whole company. Wachovia said Wells Fargo's bid is better for investors, workers and taxpayers because, unlike Citigroup, it doesn't rely on government aid.
Under the split being discussed now, neither New York-based Citigroup nor San Francisco-based Wells Fargo would get U.S. financial assistance, the Journal said.
The two suitors have spent the weekend wrangling in state and federal court over Wachovia, with Citigroup winning a New York state ruling on Oct. 4 that said it had the exclusive right to negotiate a takeover until Oct. 10. That ruling was overturned on appeal today, leaving the original expiration date of Oct. 6 in place.
``We are pleased that the unfounded order entered yesterday has been vacated,'' said a Wells Fargo statement. ``Wells Fargo will continue working toward the completion of its firm, binding merger agreement with Wachovia.''
Competing Offers
The takeover battle began Sept. 29 when Citigroup made its bid with backing from the Federal Deposit Insurance Corp. to rescue Wachovia from declaring bankruptcy, according to documents provided by Citigroup. Wells Fargo, which said it was unable to complete a competing bid in time to be considered, returned with its higher offer later in the week, which Wachovia accepted.
Citigroup said this violated a signed agreement not to solicit new offers. New York State Supreme Court Justice Charles Ramos sided with Citigroup, and he extended the exclusive right to negotiate from the Oct. 6 expiration to Oct. 10 when he scheduled a hearing on the merits.
Wachovia said yesterday in a complaint filed in the U.S. district court in New York that FDIC Chairwoman Sheila Bair, who initially agreed to provide financial support to the Citigroup bid, later helped broker the deal with Wells Fargo.
`Serious Attention'
On Oct. 2 at about 7 p.m., Bair called Wachovia CEO Robert Steel and told him to expect a call from Wells Fargo Chairman Richard Kovacevich regarding the bank's offer of $7 a share, according to the complaint. Bair encouraged Steel ``to give serious consideration to that offer,'' according to the Wachovia court filing.
``Officials from both the Treasury Department and the Federal Reserve also contacted Wachovia's lead outside counsel to inform him that the offer from Wells Fargo was forthcoming and that Wachovia should give it serious attention,'' according to the complaint.
Andrew Gray, a spokesman for the FDIC, didn't return a message left on his mobile phone seeking comment.
`Simpler, Easier'
Steel said in a separate affidavit that he agreed to the Wells Fargo deal partly because the FDIC was threatening to put its banking operations into receivership if a ``definitive merger agreement'' with either Citigroup or Wells Fargo wasn't signed by Oct. 3.
Wachovia's discussions with Citigroup had ``proved extremely complicated and difficult,'' whereas Wells Fargo's offer was ``simpler, easier for shareholders to understand, more likely to close and more likely to receive shareholder approval,'' Steel said.
After Wachovia's board approved Kovacevich's offer, Bair and Steel together phoned Citigroup CEO Vikram Pandit to say that Wachovia had agreed to the Wells Fargo deal, Steel said.
Separately, U.S. District Judge John Koeltl put off ruling on whether Wells Fargo may proceed with its takeover bid. A hearing was set for Oct. 7, at which another federal judge will be asked to decide the case.
Federal Case
Wachovia took the case to federal court, and at the emergency hearing yesterday, David Boies, a lawyer for Wachovia, asked Koeltl to decide whether language in the $700 billion federal bailout law for the banking industry enacted last week permits Wells Fargo to make a new bid.
Koeltl said it ``appears'' Wells Fargo is correct, adding that a judge who is to be permanently assigned to the case this week may reach a different conclusion.
Wachovia spokeswoman Christy Phillips-Brown said the bank was ``pleased'' that the judge granted its request for a quick resolution, while Citigroup's Shannon Bell said the company was ``very pleased that Wachovia's motions for emergency injunctive relief and a temporary restraining order were denied.''
Citigroup dropped $4.15 to $18.35 on Friday in New York Stock Exchange composite trading, after having its biggest share decline in about 20 years. Wachovia rose 59 percent to $6.21. Wells Fargo declined 1.7 percent to $34.56.
Steel's Stake
Wachovia CEO Steel, 57, stands to benefit from any improvement in bids for Wachovia. Recruited from the Treasury department in July to rebuild the lender's credibility with investors, he bought 1 million shares of Wachovia stock for about $16 million two weeks after arriving at the company.
Wells Fargo's bid won endorsement from stakeholders including Davis Selected Advisers LP, the Dodge & Cox mutual fund group and the Sandler family, according to a statement.
The Sandlers sold Golden West Financial Corp. to Wachovia in 2006 for about $24 billion, when Wachovia was run by CEO Kennedy Thompson. The unit's option-ARM home loans have since been blamed for contributing to Wachovia's record quarterly losses and Thompson lost his job.
