Rivals Agree to Pause in Wachovia Fight

Under a plan being discussed Sunday night, Citigroup and Wells Fargo would divide Wachovia's network of 3,346 branches along geographic lines, with Citigroup getting Wachovia's branches in the Northeast and mid-Atlantic regions and Wells Fargo taking those in the Southeast and California. Wells Fargo also would take over Wachovia's asset-management and brokerage units, the Journal reports.

The plans being discussed Sunday night don't involve either Citigroup or Wells Fargo receiving financial assistance from the U.S. government, according to the Journal.

Dahiya says a carving out of Wachovia between the two banks is a possibility, but the most likely outcome is that Wells Fargo settles with Citi to drop the legal battle and let it proceed with its merger.

"What is the amount that Wells Fargo would have to offer Citibank at which point Citibank will say 'OK, fine.' Anything less than $2 billion seems not worth it. It's a price that Wells Fargo can easily make if they want Wachovia badly enough and it's face-saving," Dahiya says.

Mike Mayo, an analyst at Deutsche Bank, says that while Citi may have legitimate claims, its "only plausible path to winning Wachovia at this point is an economic response involving an alternative offer that matches or betters the Wells Fargo transaction," according to a note on Monday.

"But for that to be a practical possibility in light of the preferred share issuance, it is not sufficient for Citi simply to convince a court to find that the Wells Fargo transaction violated the exclusivity agreement," Mayo writes. "Citi must also find a court willing to invalidate parts of the agreement between Wachovia and Wells Fargo, which in our opinion is not likely at this point."

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