The Wall Street Journal is reporting this evening that Citigroup, because of what I suspect was its own negotiating faux pas, is now throwing in the towel on talks with Wells Fargo over the purchase of at least part of Wachovia Bank: Continue reading
Under ordinary circumstances, a fight between Citigroup and Wells Fargo over Wachovia would be a good thing, benefiting Wachovia’s shareholders by pitting two prospective buyers against each other in a bidding war. Hence this Sunday statement by Wachovia:
“Wachovia believes its agreement with Wells Fargo is proper, valid and is in the best interest of shareholders, employees and the American taxpayers [however]. . . Citigroup is always free to make a superior offer to Wachovia.” (Courtesy WSJ Law Blog)
But these are no ordinary circumstances. The nation’s banking system would benefit, it seems, from an early resolution of the battle. Against this backdrop . . . Continue reading
Citigroup appears to have even less of a claim on Wachovia than I previously thought, on the basis of transaction documents posted late Sunday night by the New York Times (copy below the jump). The documents include an affidavit of Wachovia CEO Robert Steele and the Wachovia-Wells Fargo merger agreement. It appears, from these documents and others filed earlier by Citigroup, that if there’s a bad corporate citizen in this game, it’s Citigroup. Continue reading
Citigroup’s “agreement” with Wachovia appears to be a bust. If the $2.1 billion deal is documented by nothing more than the letter posted at Clusterstock (key excerpt below), Citigroup shareholders should get set for disappointment: the “non-binding” term sheet apparently involved a $42 billion contribution by the federal government. Citi’s reported $60 billion lawsuit against Wells Fargo suggests Wachovia was worth far more than Citi was letting on.
Great news just in from Wachovia: It’s “fair value” rose by an astonishing 750 percent overnight, to $15.1 billion from $2.16 billion. That’s right. Yesterday at this time, Wachovia was supposedly worth only $2.16 billion — in the eyes of government regulators who were trying to force it into an arranged marriage with Citigroup. Turns out that the regulators were wrong. The market had other ideas.
Congress take note: regulators can get it wrong on both ends — high and low. Lucky for Wachovia’s shareholders — and the financial markets — Wachovia’s board didn’t listen. Best to let the market do its work and get out of the way.
Speaking of which, what about U.S. GAAP’s “fair value” accounting regime? How much was Wachovia really worth 24 hours ago? Either U.S. GAAP was lying then or it’s lying now. What’s the point of having companies report assets at “fair value” when fair value is so context-dependent and fluctuates by 750% in a matter of hours? Fair value makes sense in some contexts, particularly in highly liquid markets. In others, it is likely to be materially misleading.
If you buy the notion that a bank bailout is necessary — and many of us do not — the bill passed last night by the Senate is seriously deficient in terms of governance and oversight. It should, therefore, be rejected by the House. Continue reading
109 pages were not enough to drown dissent in the U.S. House, but maybe an entire ream will be. The latest Senate bank bailout bill fills 451 pages. Despite its length, it features stunning gaps in logic. What else should we expect from roughly 350 pages of legalese written between Sunday and Wednesday afternoon?
Example: The entire bill is aimed at empowering the Secretary of the Treasury to buy “troubled assets,” defined in the excerpt reproduced below. Included among these poor creatures are things they call “other financial instruments” which the drafters forgot to define. Maybe it was intentional? Observe: Continue reading
Some commentators — including Lynn Turner — have pointed out that Section 132 of the bailout draft appears to be an effort by Congress to empower the SEC to immediately suspend mark-to-market accounting, bypassing normal due process rule making with an “order” that would not require public notice or comment. Continue reading
Fair value accounting is coming under fire, now, from various directions including Newt Gingrich and a number of banks and economists. Apparently, some banks (though not all) think it unfair that Wachovia should be bought for $2.16 billion when it’s balance sheet reports $75.1 billion in net assets. Continue reading
“Talk of [financial] Armageddon . . . is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.” So says Harvard economist Jefffrey A. Miron, writing today at CNN.
What does Miron say government should do now? For starters, stop the cruel pretense that people who can’t pay back a freely-negotiated mortgage should be homeowners: Continue reading