A battle broke out Friday for control of Wachovia, as Wells Fargo agreed to pay $15.1 billion for the struggling bank, while Citigroup and federal regulators insisted Citi's earlier and lower-priced takeover offer go forward.

Share story

NEW YORK — A battle broke out Friday for control of Wachovia, as Wells Fargo agreed to pay $15.1 billion for the struggling bank, while Citigroup and federal regulators insisted Citi’s earlier and lower-priced takeover offer go forward.

The surprise announcement that Wachovia agreed to be acquired by San Francisco-based Wells Fargo in the all-stock deal — without government assistance — upended what had appeared to be a carefully examined arrangement and caught regulators off guard.

Only four days earlier, Citigroup agreed to pay $2.1 billion for Wachovia’s banking operations in a deal that would have the help of the Federal Deposit Insurance Corp. (FDIC).

The head of the FDIC said the agency is standing behind the Citigroup agreement but that it is reviewing all proposals and will work with the banks’ regulators “to pursue a resolution that serves the public interest.”

Citigroup, which demanded Wachovia call off its deal with Wells Fargo, said its agreement with Wachovia provides that the bank will not enter into any transaction with any party other than Citi or negotiate with anyone else.

Barring legal action, Wachovia’s future will be determined by the bank’s investors and regulators, which both have to approve a final deal.

It was clear which they preferred Friday, as Wachovia shares climbed 61 percent.

The FDIC is talking out of both sides of its mouth, said Roger Cominsky, partner in law firm Hiscock & Barclay’s financial-institutions and lending practice.

The agency says it stands behind the Citigroup deal because it hasn’t been rebuffed yet, he said.

But at the same time, they are saying they are reviewing all proposals, Cominsky said.

By law, he said the FDIC is required to find the least-costly resolution for taxpayers.

The Wells Fargo deal would not rely on any assistance from the government.

“Wells’ deeper and more considered due diligence has probably revealed fewer risky assets and a larger number of higher valued assets than originally thought,” said Anant Sundaram, professor of finance at the Tuck School of Business at Dartmouth College.