In the latest development of what must be the most eventful year in the history of banking, Warren Buffett's Wells Fargo has snatched Wachovia bank from Vikram Pandit's Citigroup. In what must be the most humiliating and daring bank acquisition to date, Wells bid and closed a $16b deal for Wachovia, an offer that trumped Citi's pathetic $2.1b and that has Pandit and his minions crying foul, or whining, rather.
But Pandit seriously doesn't have much of a chance. Wells Fargo is paying much more and is not requiring any assistance from FDIC, in contrast to Citigroup's relatively pathetic bid which involved "FDIC agreeing to absorb up to $42 billion in losses should Wachovia's $312 billion pool of loans later turn sour." The withdrawal of FDIC involvement will surely mean a goodbye to Citi's bid for Wachovia, but Pandit must have known better than to expect that his paltry offer would have been the best in the market.
Indeed, Citigroup's predicament today is the result of poor credit decisions and unwieldy acquisitions that have seen Citi's stock plummet and that have given the lumbering behemoth little room to maneauvre when it comes to acquisition battles like this. In contrast, Buffett's Wells Fargo has prudently steered clear of risky loans and credit derivatives that have already destroyed several banking and financial institutions. This discipline has enabled the bank to retain the confidence of the market and has opened up the opportunity to utilise its strong balance sheet as an acquisition tool in its knockout punch to acquire Wachovia.
Fargo's acquisition of Wachovia now makes GIC's investment decision in Citigroup now look horribly stupid. Lee Kuan Yew went on the record earlier this year in a bloomberg interview, lauding Citigroup's vast retail sprawl. But now Citigroup is going to be left licking its wounds as the Wells-Wachovia combination leapfrogs Citi in terms of retail reach across the USA. At the same time, JP Morgan and Jamie Dimon have snapped up WaMu and Bear Stearns for bargain basement prices. Sandy Weill now looks like an idiot for firing Jamie, and backers of Charles Prince look equally dumb.
Berkshire 1 - GIC 0
That's not the end of the story. GIC took stakes in the worst banks (Citigroup & UBS) at the beginning of the credit crisis, following which the stock prices of these investments continued to tumble to where they are today. Mr Buffett, in contrast, had the prudence and patience to wait for credit events to unfold, before taking a stake in the best bank of them all, Goldman Sachs. Buffett's investment immediately showed a profit, and with the best brains in the banking business at the helm of GS, there can surely be no doubt that GS will outperform C and UBS in the months and years ahead.
Berkshire 2 - GIC 0
Well, I think recent events are pretty conclusive about who's the investment genius here. Warren Buffett has looked his usual investment genius self, and in the process has made Lee Kuan Yew look like a rather foolish idiot, unqualified to be chairman of one of the largest sovereign wealth funds in the world.
Oh well, we all knew that was coming, didnt we?