Citigroup sues Wachovia, Wells Fargo, for $60 bn

NEW YORK: In the acquisition scramble for Wachovia bank, Citigroup on Monday sued rival Wells Fargo & Co and Wachovia for $60 bn in punitive and compensatory damages, Citigroup said.

The move is the latest in the Wall Street scramble as the US financial system struggles for stability amidst a severe credit crunch. Despite Friday's passage of a $700 bn bail-out plan by the US government, US stocks continued to plummet Monday, with the three major indices losing more than five per cent in trading at midday.

Wachovia, the country's fourth-largest bank, surprised Citigroup Friday with its announcement it would go with a higher offer from Wells Fargo, which has offered $15 bn in a stock-for-stock exchange.

That would have overidden a Citigroup-government deal announced Sep 29, which offered $2.16 bn for Wachovia.

That deal called for Citigroup to take on more than $40 bn of Wachovia's losses, while the Federal Deposit Insurance Corporation (FDIC) would have absorbed losses beyond that amount in exchange for $12 bn in preferred stocks and warrants.

FDIC chairman Sheila Bair said Monday that the government agency that insures bank deposits hoped the outcome would be settled by later Monday.

"I think it needs to be settled today. It's really between the parties, we're not involved," Bair was quoted as saying by Bloomberg financial news service.

Also on Monday, the Wall Street Journal reported a possible compromise in the takeover battle, with the two rivals considering a deal to divide up the bank.

In the complaint filed Monday in the New York State Supreme Court in Manhattan, Citigroup claimed the Wells Fargo deal violated its rights to buy some assets of the Charlotte, North Carolina-based lender under the previous deal.

Citigroup CEO Vikram Pandit said Saturday that "any such agreement between Wachovia and Wells Fargo is illegal. We continue to vigorously pursue Citigroup's interest and rights in completing this transaction."

The Wells Fargo arrangement is a signed and board-approved offer to buy Wachovia as an intact company in a stock-for-stock merger which can be carried out without government help.

Late Saturday, a New York state court judge granted an emergency order extending Citigroup's "exclusivity agreement" with Wachovia Corp.

The ongoing financial crisis has impacted Citigroup, whose market value has plunged 38 per cent this year to about $100 billion. If it buys Wachovia, Citigroup would have the third-largest bank network in the country.