The government-orchestrated deal had been announced on Monday morning, but it still needed to be formally “papered over,” and in the meantime, Citigroup was keeping Wachovia alive by loaning it $4.9 billion. A number of details were still to be worked out, but they expected to have a signed agreement within the next day. Steel had spent that afternoon at Citigroup discussing the postmerger fates of the most senior Wachovia executives. Before he left he had shaken hands with Pandit. “Looks like we’re done,” Pandit had said gladly.
As Steel’s plane taxied down the runway his BlackBerry rang. It was Sheila Bair. “Hi, have you heard from Dick Kovacevich?”
“No, not since Monday morning,” a puzzled Steel answered; the Wells Fargo CEO had called then to offer his congratulations on the deal with Citi. “Why?”
“I understand that he’s going to be making a proposal for $7 in stock for the entire company—no government assistance.”
“Wow,” Steel replied, quickly trying to assess the ramifications of the surprise offer for his firm. Had Wells Fargo just jumped Citigroup’s bid? Was the government, which had blessed the original deal, now reversing itself? “Sheila, I’m about to take off any second,” he apologized. “You should call Jane Sherburne,” he added, referring to Wachovia’s general counsel.
Sometime after 9:00 p.m., just minutes after Steel’s plane landed in Charlotte, Kovacevich phoned with the pitch that Bair had outlined earlier. Having just spoken with Sherburne and Rodgin Cohen, Wachovia’s outside counsel, Steel had been instructed by them not to say anything that would indicate acceptance or rejection of the offer.
“I look forward to seeing the proposal,” Steel told Kovacevich, and a minute later he received an e-mail with a merger agreement already approved by the Wells board.
It was as if Christmas had come early. Steel couldn’t believe his luck: A deal at $7 a share, up from $1 a share—and without government assistance.
He called his office and scheduled an emergency board meeting by telephone for 11:00 p.m. Before the board call, Steel had a strategy discussion with Cohen. While he owed it to Wachovia shareholders to take the highest bid, he also recognized that he already had a deal with Citigroup—a deal that had kept the firm from failing. The term sheet that Wachovia had signed with Citigroup included an exclusivity provision that prevented the firm from accepting another offer.
“I’m going to be sued by somebody,” Steel told Cohen.
“Pick your poison,” Cohen replied drily.
To both of them, however, it was clear that there really was no choice: The board had to accept the higher bid and take its chances with a suit from Citigroup. Steel and Cohen realized that Wells Fargo had made its bid because of a little-noticed change in the tax law that had occurred on Tuesday, the day after the Citigroup deal. The new provision would allow Wells Fargo to use all of Wachovia’s write-downs as a deduction against its own income, thus enabling the combined bank to save billions in future taxes.
Wachovia’s board voted to accept the deal just after midnight. The Wells offer was for the entire company; it gave shareholders more; and it was clearly the deal preferred by regulators. (Citigroup’s deal, while worth only $1 a share, would have left behind several Wachovia subsidiaries that could have additional value—possibly several dollars a share worth—but a precise number would have been difficult to determine.) It was after 2:00 a.m. by the time Wachovia’s board had fairness opinions from advisers Goldman Sachs and Perella Weinberg, who had been on opposite sides of the negotiating table just a week before.
Steel called Kovacevich to tell him the news, and then dialed Bair’s BlackBerry, which she had instructed him to call instead of her home number so as not to wake her children.
“We’re all approved,” he told her.
“All right,” Bair said, sounding relieved. “We will have to call Vikram first thing in the morning.”
“Sheila, we’re not waiting until the morning,” Steel said resolutely. “We’ve done this; we’ve approved it. I think we have to call him now. I don’t want him hearing this when he wakes up from someone else.”
“You should do it,” she said equally firmly.
“I think you should be on the phone, since you married us,” he replied.
With Bair on the line, Steel conferenced in Jane Sherburne, and then he called Pandit, not surprisingly waking him.
“Bob, what’s going on?” he asked groggily.
“Well, there’s been an important development,” Steel said carefully. “I’m on the phone with Sheila and Jane. Do you need a moment?”
“No, I’m fine,” Pandit said, collecting himself. “What is it?”
“We received an unsolicited proposal from Wells Fargo for the entire company of Wachovia, $7 a share, no assistance, and a Wells Fargo board-approved doc that we’ve accepted. We think this is the right thing to do.”
“Well, that’s interesting,” Pandit answered, a bit taken aback. “A better bid? Let me call Ned. Let’s work with you, and let’s see what we can do and get this thing resolved.”
“No, no. You don’t understand,” Steel interrupted, pausing for a moment. “I’ve signed it already.”
There was silence on the other end of the line. If Pandit hadn’t been completely awake before, he was now. When he resumed speaking he was irate, the full force of Steel’s news having registered with him.
“We have a deal! You know you can’t do this, because we actually have an exclusive arrangement with you. You are not allowed to sign.” Pandit, frustrated, appealed to Bair. “Madame Chairwoman?”
“Well, I can’t get in the way of this,” Bair replied, in her most official tones.
“This isn’t just about Citi,” Pandit explained to her. “There are other issues we need to consider. I need to speak to you privately.”
Steel agreed to leave the conversation, and as soon as he hung up Pandit began pleading with Bair. “This is not right. It’s not right for the country, it’s just not right!”
But the decision, she made it abundantly clear, was final.
Stock prices were surging before the House began voting on the bailout bill for a second time on the afternoon of Friday, October 3. Its passage was eased after the Senate version of the legislation added a number of tax breaks that were otherwise due to expire. Another popular addition increased the amount in individual bank accounts insured by the FDIC to $250,000 from $100,000. What had begun as a three-page draft was now more than 450 pages of legislative legalese, which the Senate had approved after sundown on Wednesday.
Many of the House Democrats and Republicans who had opposed the measure on Monday had since been persuaded to switch their votes—some by appeals from the two presidential candidates or from the president, some by the added provisions in the bill, and others by the mounting signs that the financial crisis was dragging the economy down into a deep recession. A recent report indicated that 159,000 jobs had been lost in September, the fastest pace of monthly job cuts in more than five years. Stocks had slid sharply that week, and both the takeover of Washington Mutual and the desperate jockeying to secure a partner for Wachovia revealed that not only Wall Street was in trouble.
In the final House tally, thirty-three Democrats and twenty-four Republicans who had voted against the bill on Monday now approved it. That afternoon, President Bush signed the Emergency Economic Stabilization Act of 2008, which created the $700 billion Troubled Assets Relief Program, or TARP. “We have shown the world that the United States will stabilize our financial markets and maintain a leading role in the global economy,” the president declared.