As we pointed out this morning, Wells Fargo's bid for Wachovia put Citigroup in a bind. It can't hope to get the terms it offered but it can't afford to match the terms Wells Fargo offered because it was hoping to use the Wachovia acquisition as a covert recapitalization. (And maybe the FDIC and the Fed were hoping it would work that way too.) Now it seems that Citi is reaching out for other partners to help it bid on a portion of Wachovia.
From the WSJ:
Looking for added leverage in the talks, Citigroup on Tuesday was trying to line up other companies, including non-banks, to join its bid for Wachovia's branch network. Citigroup's goal is to win a bigger share of Wachovia's deposits, but not to take over the entire company, one person said.
This looks a lot to us like a clown-car acquisition, where you cram as many investors as you can into a small place, and hope somehow you can still drive it around the circus. More concretely, it sounds like what Citi is hoping is that other investors will come in and help it recapitalize itself through an acquisition of Wachovia deposits. Unfortunately for Citi, every single investor who has played recapped rescuer to financial firms is now underwater. How many times can investors be told that we are about to emerge from this crisis and they'd better get in now?
It looks like Citi is hoping the answer is: "At least one more time."
