Yeah that was an ugly close. We are set to be clown raped or spring higher next week. A global coordinated rate cut could short squeeze the markets and send them screaming higher or a major bankruptcy could spark a crash. I’m very content sitting in cash for the time being.
I’m a big fan of SRS. The Commercial Real Estate market is the next victim. So over valued.
DB and on edge: I thought you two may be interested in reading this legal opinion on the Wachovia/Wells Fargo deal. Seems like it doesn’t have a chance in hell of getting done.
"Conclusion first, always: Citigroup has a binding contract which will prevent the sale/merger of Wachovia to Wells Fargo, regardless of the Wells Fargo deal�??s economic merits. The only way for Wachovia to get out of that agreement with Citigroup will be for Wachovia�??s parent company to file a Chapter 11 bankruptcy. Anyone who is selling Citigroup stock based on this situation should think twice. Anyone who is buying Wachovia stock based upon Wells Fargo�??s bid is very, very foolish. Anyone who is buying Wells Fargo�??s stock based upon Wachovia�??s appearance of agreement to sell/merge itself with Wells Fargo is equally foolish.
To preface my comments on the contract between Wachovia and Citigroup, and my comments on the conduct of Wells Fargo, let me say that:
(A) I am a New Yorker and therefore I hate Citigroup as a matter of birth obligation and
(B) I have dealt with Wells Fargo many times and I hate them equally, based upon their conduct.
With those facts disclosed, I make the following comment on this situation based on 30 years of going to court to attack or defend the sorts of conduct exhibited by Wachovia and Wells Fargo today. The people in the financial media writing about the situation between the three banks are simply clueless about what will happen in a New York court, which Wachovia has agreed is the only location where a court has jurisdiction over this matter.
Last Monday morning, Wachovia�??s senior management did not sign a binding contract to sell selected assets to Citigroup. That binding contract was supposed to be negotiated, written and signed on or before October 6, 2008.
However, Wachovia�??s senior managment DID SIGN a binding contract which some people call an �??exclusivity agreement�??. The binding exclusivity agreement is crystal clear. You can read it for yourself at the Wall Street Journal�??s website:
http://online.wsj.com/public/r�?�..nt2008.pdf
The binding exclusivity agreement is a masterpiece of legal drafting, from Citigroup�??s point of view. Print it and save it for your form files.
The binding exclusivity agreement�??s wording is perfect from a legal point of view, in terms of Citigroup being able to get an injunction against any merger or sale of Wachovia, or any significant part thereof, into any entity other that Citigroup. The binding exclusivity agreement contains the four key paragraphs which will allow Citigroup to stop a merger or sale of Wachovia to Wells Fargo:
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A very detailed description of conduct by Wachovia which is prohibited, i.e. making any deal with anyone other than Citigroup.
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A recitation by Wachovia that damages payable to Citigroup (for breach of contract) are an inadequate remedy to protect Citigroup from losses if the agreement is breached. That is the �??magic legal language�?? to entitle Citigroup to a temporary restraining order, preliminary injunction and permanent injunction to stop the sale or merger of Wachovia into Wells Fargo.
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An acknowledgment that Citigroup is entitled to the remedy of �??specific performance�??, meaning that it can force the cancellation of the Wachovia-Wells Fargo contract.
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A paragraph reciting that New York law applies to the enforcement of the contract and reciting that the only court with jurisdiction over Wachovia is the federal or state court in Manhattan. Specifically, Wachovia waived the right to remove any litigation with Citigroup to any other court.
As a result, the comments printed in today�??s online Wall Street Journal from the unnamed source, that �??the Wachovia Directors were obligated under their fiduciary duty to shareholders to accept Wells Fargo�??s higher offer, even though that leaves Wachovia legally vulnerable�?? are the m@r@nic babblings of a person who is not a lawyer, and who has never seen the inside of a court room on an injunctive relief hearing.
The fiduciary duty of Wachovia�??s officers and directors existed on Sunday night and in the wee hours of Saturday morning. However, once that exclusivity agreement was signed, the sole remedy of the shareholders for any breach of fiduciary duty became a lawsuit against the officers and directors. Under well established case law, Wachovia�??s own officers and directors cannot use their own breach of fiduciary duty as a defense to the issuance of a TRO/injunction against any Wachovia/Wells Fargo merger or sale, nor can they use their own breach of fiduciary duty to prevent enforcement of the exclusivity agreement by Citigroup. Similarly that breach of fiduciary duty cannot be used by Wells Fargo as a sword to invalidate the exclusivity agreement or to defend its own tortious conduct in interfering with Citigroup�??s rights under the exclusivity agreement.
Proving, once again, that Wells Fargo�??s senior management are presumptuous scum not to be trusted, ever, the Wall Street Journal�??s online article today contained the following text: �??We think that this deal is solid,�?? said Wells Fargo Chairman Richard Kovacevich. �??We are not aware of any merger agreement that has been consummated at the time and as far as other issues, I haven�??t seen anything in terms of issues that Citigroup had or doesn�??t have. We feel very confident that this transaction has been done appropriately and will continue and be consummated.�??
He added: �??We believe that regulators would also be comfortable with what has transpired here.�??
As I write this Maria B. on CNBC is interviewing Kovacevich. He stated that �??We have a signed merger agreement and no one else does�??. Kovacevich�??s interview also make a raft of other statements that the New York court will find to be incredibly useful in issuing an injunction against the Wells Fargo/Wachovia merger.
In his interview with CNBC Kovacevich also admitted that his company submitted the merger agreement to Wachovia�??s management and got it signed without first clearing what he was doing with the FDIC.
New Yorkers hate Citigroup because they are the most litigious, aggressive company in the state. There is absolutely no doubt that Citigroup will do whatever it takes to drive a gigantic stake into Richard Kovacevich�??s heart, and to destroy Wells Fargo. If Wachovia ends up in a Chapter 11, that will merely be collateral damage.
The conduct of Kovacevich, the Wells Fargo legal team, Wachovia�??s management and the Wachovia legal team goes beyond reprehensible because it is conduct which will wildly destablize the banking system."