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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

Citigroup and Wachovia immediately began working on the deal—even as Wa-
chovia’s stock fell . to . on September , the day that TARP was initially re-
jected by lawmakers. They faced tremendous pressure from the regulators and the
markets to conclude the transaction before the following Monday, but the deal was
complicated: Citigroup was not acquiring the holding company, just the bank, and
Citigroup wanted to change some of the original terms. Then came a surprise: on
Thursday morning, October , Wells Fargo returned to the table and made a compet-
ing bid to buy all of Wachovia for  a share—seven times Citigroup’s bid, with no
government assistance.
There was a great deal of speculation over the timing of Wells Fargo’s new pro-
posal, particularly given IRS Notice -. This administrative ruling, issued just
two days earlier, allowed an acquiring company to write off the losses of an acquired
company immediately, rather than spreading them over time. Wells told the SEC that
the IRS ruling permitted the bank to reduce taxable income by  billion in the first
year following the acquisition rather than by  billion per year for three years. How-
ever, Wells said this “was itself not a major factor” in its decision to bid for Wachovia
without direct government assistance.  Former Wells chairman Kovacevich told the
FCIC that Wells’s revised bid reflected additional due diligence, the point he had
made to Wachovia CEO Steel at the time.  But the FDIC’s Bair said Kovacevich told
her at the time that the tax change had been a factor leading to Wells’s revised bid. 
On Thursday, October , three days after accepting Citigroup’s federally assisted
offer, Wachovia’s board convened an emergency : P.M. session to discuss Wells’s
revised bid. The Wachovia board voted unanimously in favor.
At about : A.M. Friday, Wachovia’s Steel, its General Counsel Jane Sherburne,
and FDIC Chairman Bair called Citigroup CEO Vikram Pandit to inform him that
Wachovia had signed a definitive merger agreement with Wells. Steel read from pre-
pared notes. Pandit was stunned. “He was disappointed. That’s an understatement,”
Steel told the FCIC.  Pandit thought Citigroup and Wachovia already had a deal.
After Steel and Sherburne dropped off the phone call, Pandit asked Bair if Citigroup
could keep its original loss-sharing agreement to purchase Wachovia if it matched
Wells’s offer of  a share. Bair said no, reasoning that the FDIC was not going to
stand in the way of a private deal. Nor was it the role of the agency to help Citigroup
in a bidding war. She also told the FCIC that she had concerns about Citigroup’s own
viability if it acquired Wachovia for that price. “In reality, we didn’t know how unsta-
ble Citigroup was at that point,” Chairman Bair said. “Here we were selling a troubled
institution . . . with a troubled mortgage portfolio to another troubled institution. . . .
I think if that deal had gone through, Citigroup would have had to have been bailed
out again.” 
Later Friday morning, Wachovia announced the deal with Wells with the blessing
of the FDIC. “This agreement won’t require even a penny from the FDIC,” Kovacevich
said in the press release. Steel added that the “deal enables us to keep Wachovia intact
and preserve the value of an integrated company, without government support.” 
On Monday, October , Citigroup filed suit to enjoin Wells Fargo’s acquisition of