There’s a bit of drama unfolding in the Wachovia buyout. The most recent update is that the Wells deal is on, and not the Citigroup deal. Citigroup had brokered a deal to buy the failing bank for $2.1bn, or about $1/share. (Note that Wachovia is worth about $6.00/share right now.) This deal obviously isn’t the best for the shareholders, but Wachovia says they brokered this because they thought they were about to be taken over by the government. Citigroup posted losses of $7.6bn in the last two quarters, expects to lose money again this quarter, and their stock has seen a 62% drop in the last year. However, even with their troubles, this merger would be a huge gain for Citigroup, especially at the price they’re offering. Citi would become the largest US bank, with nearly $3 trillion in assets, and the FDIC would assume all losses over $42 bn in exchange for $12 bn stake in Citigroup. Shareholders, however, are understandably more interested in the Wells offer.

The twist here is that taxpayers could lose out more on the Wells deal than the Citigroup deal, since banking regulations recently passed to encourage mergers would allow for a nearly $74bn profit shelter for Wells-Wachovia. The biggest losers, of course, could be Wachovia’s employees. The firm has already announced plans to cut over 11,000 jobs – nearly 7,000 of those existing positions. If the legal issues surrounding the proposed mergers drags on, it could spell trouble for Wachovia’s customers, and prompt a takeover by the FDIC.

What are your thoughts on the Wells-Citi drama?

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