I often rail against economists for their inability to pick a side. I find myself in the same state over this Citi/Wachovia/Wells Fargo situation. On the one hand, Citi stepped up to the plate and kept the bank open (on the urging of regulators) with government guarantees which potentially expose the tax payer. On the other hand, the Wells deal costs the taxpayer nothing and rewards the Wachovia shareholders much more handsomely: a win-win.
With the banking environment still tenuous, regulators should probably force Wachovia to stand by the Citi deal. Otherwise, what incentive will white knights have to step in at the urging of the government? If the failing bank can be plucked away from them after the landscape changes, this precedent means only bad deals get done while potentially lucrative deals for the acquirer will be broken up.
