The Wachovia debacle turned out to be a turning point for Citigroup. The deal’s unravelling highlighted the paucity of other options for the firm to pursue in an era when many banks are merging in order to survive.
Few other banks that Citigroup can afford to buy would bring similar levels of deposits, the lifeblood of banks. In recent weeks, Citigroup has been negotiating a possible acquisition of Chevy Chase Bank, which is a fraction of Wachovia’s size, according to people familiar with the matter. With Citigroup’s stock declining, the Chevy Chase deal is now in danger of falling apart, the people said, because Citigroup had hoped to pay for the acquisition in stock instead of cash. Other bidders include Capital One Financial Corp., BB&T Corp., JPMorgan Chase and Co. and SunTrust Banks Inc., the people said.
Citigroup executives are also weighing the possibility of selling the company or merging with a rival. Some analysts have pointed to Morgan Stanley and Goldman Sachs Group Inc. as potential suitors.
In the case of Morgan, Pandit spent most of his career there and still keeps in touch with Morgan executives, including CEO John Mack. But people familiar with the matter said that Morgan wasn’t weighing a bid and hadn’t spoken to Citigroup about a deal recently.
Morgan and Citigroup held preliminary discussions about a merger in September when Morgan Stanley shares were under intense pressure. Morgan covets the bank deposits and the added brokerage business that Citigroup would bring, but Morgan would mainly bring to Citigroup an investment bank that greatly overlaps with its own business.
Goldman Sachs is in much the same situation. It, too, would potentially look at pieces of Citigroup. But buying the entire company, and the liabilities that come with it, would be a lot to bite off.
Rob Curran, Dan Fitzpatrick, Aaron Lucchetti and Robin Sidel contributed to this story.
wsj@livemint.com