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The bank run began the day after the stunning failure of Washington Mutual. Around 5 a.m. that morning, Wachovia chief executive Bob Steel called Citigroup CEO Vikram Pandit to talk about a possible deal. During the day, Wachovia's stock would plunge 27 percent, adding urgency to the situation.
During intense negotiations that weekend, Wachovia agreed to sell most of its operations to Citi under the direction of the Federal Deposit Insurance Corp. Four days later, however, Wells Fargo & Co. swooped in with a rival bid, which Wachovia accepted. That spurred a legal fight and negotiations to possibly carve up Wachovia among Citi and Wells. On Thursday, Citi backed down, allowing Wells to move forward with its purchase of Wachovia, although Citi is still seeking damages in court.
The Charlotte Observer previously reported that Wachovia faced a silent run on its deposits but the amount hasn't been detailed. Wachovia had $448 billion in deposits as of June 30. The Citi filings also describe the "liquidity crunch" the bank faced. Wachovia's ability to borrow from other banks came under pressure because the cost of insurance products needed to cover the risk of lending to the bank escalated, the filings said.
Although Wachovia reached an agreement-in-principle on Sept. 29 to sell most of its operations to Citi, the two sides never finalized a merger agreement. According to the filings, early on the morning of Thursday Oct. 2 Citi's head of global banking, Edward Kelly, and Wachovia's chief financial officer, David Zwiener, agreed the deal was "done." After details were finalized, the plan was to sign the agreement at 2 p.m. on Friday, Oct. 3, followed by board approval and an announcement after the market closed that day.
On that Thursday, lawyers worked into the night at the offices of Citi's outside counsel, Davis Polk & Wardwell. That night, however, Wells Fargo chairman Dick Kovacevich called Steel about a rival offer, which Wachovia accepted. Around 2:15 a.m. Friday, Steel called Pandit to inform him of the new deal, according to the filings. Wachovia didn't give Citi a chance to make a counteroffer, the filings say.
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