Rivals Agree to Pause in Wachovia Fight

Citigroup (C), Wells Fargo (WFC) and Wachovia (WB) have agreed to halt their burgeoning legal battle through Wednesday, as they work with the Federal Reserve to resolve the disagreements resulting from two competing deals for the ailing North Carolina bank last week.

Wachovia would have failed last week if Citi hadn't heeded the federal government's call to purchase its banking operations for $2.16 billion the day before, Citi said in announcing a $60 billion lawsuit against Wachovia and Wells Fargo for breaching an exclusivity agreement by trumping its deal. Citi said Wells Fargo "walked away" from a deal before federal authorities called on Citi to help.

The banks have now agreed to put all formal litigation on temporary hold, according to statements by all three firms. The "standstill agreement" will expire at noon on Wednesday.

Wells Fargo on Friday struck a deal with Wachovia to acquire all of the Charlotte, N.C.-based bank in an all-stock bid totaling roughly $15 billion, or $7 a share. Wells and Wachovia touted the offer as clearly superior for Wachovia shareholders, since it did not require any government assistance. Citi, by contrast, made its deal with the Federal Deposit Insurance Corp. agreeing to take on possible losses on Wachovia's loan portfolio.

On the other hand, Citi did come to the table when the Federal Deposit Insurance Corp. needed it. And regardless of whether Citi's lawsuit has merit at this point, it would probably be in the best interests of the FDIC to come up with a compromise to keep Citi happy, says Sandeep Dahiya, an associate finance professor at Georgetown University.