CHARLOTTE -- Wachovia lost $5 billion in deposits on Sept. 26 in a "silent run" on the Charlotte bank, leading regulators to tell Wachovia that it would be shut down within days if it were not acquired, according to court filings made by Citigroup on Friday.
The bank run began the day after the stunning failure of Washington Mutual. Around 5 a.m. that morning, Wachovia chief executive Bob Steel called Citigroup CEO Vikram Pandit to talk about a deal. During the day, Wachovia's stock would plunge 27 percent.
During intense negotiations that weekend, Wachovia agreed to sell most of its operations to Citi under the direction of the Federal Deposit Insurance Corp. Four days later, however, Wells Fargo swooped in with a rival bid, which Wachovia accepted. That spurred a legal fight and negotiations to possibly carve up Wachovia among Citi and Wells. On Thursday, Citi backed down, allowing Wells to move forward with its purchase of Wachovia, although Citi still is seeking damages in court.
The Charlotte Observer previously reported that Wachovia faced a silent run on its deposits, but the amount hasn't been detailed. Wachovia had $448 billion in deposits as of June 30. The Citi filings describe the "liquidity crunch" the bank faced. Wachovia's ability to borrow from other banks came under pressure because the cost of insurance products needed to cover the risk of lending to the bank escalated, the filings said.
Although Wachovia reached an agreement-in-principle to sell most of its operations to Citi, the two sides never finalized a merger agreement. Around 2:15 a.m. Oct. 3, Steel called Pandit to inform him of the new deal.