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Wells Fargo forges deal that nixes Wachovia-Citi purchase

Summary

Four days after Citi announced a government-backed purchase of some Wachovia Bank assets, Wells Fargo Bank has announced a deal to merge with Wachovia.

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Four days after Wachovia Bank tentatively agreed to sell key banking and credit card assets to Citi in a government-backed deal, Wells Fargo bank stepped in with a new deal to merge with Wachovia, bank officials announced Friday.

Within hours of the announcement, Citi officials released a tersely worded statement demanding that Wachovia terminate the Wells Fargo pact and threatening to file suit for breach of contract.

The Wells Fargo-Wachovia merger — valued at $15.1 billion — effectively nixes the Citi purchase, which would have required the Federal Deposit Insurance Corporation to absorb losses that exceed $42 billion on Wachovia’s $312 billion bad mortgage loans. (See What happens to credit debt when a bank fails and Credit crisis survival tips)

“This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support,” Wachovia CEO Robert K. Steel said in a statement released early Friday.

Added Wells Fargo CEO John Stumpf: “We know this has been a time of great uncertainty for Wachovia team members and many of its customers as their company has gone through a very painful and challenging time of unprecedented change in our industry. We want to assure them we’ll do everything we can to make the integration of our operations as smooth as possible.”

The merger allows Wells Fargo, the second largest debit card issuer and, as of February 2008, the ninth largest general purpose credit card issuer in the United States, to expand its banking operations to East Coast states, including Florida, Georgia, New York and Pennsylvania.

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See related: Credit crisis survival tips, What happens to credit debt when a bank failsCiti buys Wachovia banking and credit card business, Chase buys WaMu’s banking, credit card assets, Wachovia card user wonders what nextLessons from ‘It’s a Wonderful Life’

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