Wachovia Fight Ends With the Right Winner

"I suspect that as Citi and Wells Fargo frankly dug into more of what was under the covers at Wachovia the debt might have been greater than what was expected, and Citi was probably looking at not getting enough out of the deal to make it worthwhile to keep battling," says Nancy Atkinson, a senior industry analyst at Aite Group.

"To me it's a better market play for it to be Wells," she says. "Wells now really moves up into the top four banks in the U.S. By expanding across the country, Wells really has the opportunity to grow their franchise. I think the Citi deal would have been a bit more focused on cost cutting and efficiencies than growth."

Citi on Sept. 29 had agreed to take over Wachovia's banking operations for $2.16 billion, or about $1 a share, in a deal pushed forward by the Federal Deposit Insurance Corp. On Oct. 3, Wells trumped that plan with its own offer of $15.1 billion, or $7 a share, to acquire all of Wachovia. Wells' offer did not require FDIC assistance, while Citi's needed the government to take on potential losses on part of Wachovia's loan portfolio

Citi said that without its willingness to acquire Wachovia, the bank would have failed in a matter of days. It said Wells had "walked away" from a deal prior to the FDIC reaching out to Citi.

Industry observers had said last week that instead of beginning a legal battle that could take months, Citi should just step aside, regardless of the fact that it came forward when the FDIC needed it.

"Citi is crazy," said Cassandra Toroian, the president and chief investment officer of Bell Rock Capital, which has a small position in Wachovia, last Friday. "The legal fees and time on this is not something they should be bothering with. They need to go find another deal."