Wachovia Fight Ends With the Right Winner

For Citi, a deal with Wachovia would likely have detracted the firm from continuing its mission to shed $400 billion in noncore assets and businesses from its balance sheet, despite Pandit's reassurances that nothing would "take our eye off the ball in getting fit."

Pandit said Thursday that Citi will apply the same "discipline" it used in the Wachovia deal to future transactions. It will also "redouble" its focus on capital and risk management, as well as controlling expenses, he said in a statement.

Wells does still have to deal with the $122-billion Option ARM portfolio that is at the heart of Wachovia's troubles, among other souring loans, such as residential construction and land loans. Wells Fargo executives on a conference call Oct. 3 to discuss the deal had estimated that losses would total $74 billion from a combination of credit losses and writedowns.

But executives were vague when asked by an analyst about how exactly they would deal with Wachovia's Option ARM book, and simply said that they would look at a variety of measures, including refinancings and asset sales.

Stifel's Mutascio worries about Wells Fargo's own home equity, credit card and commercial loan portfolios, which are all posting "higher-than-average" losses compared with other large banks, he writes.

Because of that, combined with a deteriorating residential mortgage portfolio, on top of the poor loans Wells Fargo will be adding from Wachovia, the bank is likely to have further loan-loss provisioning in the coming quarters, Mutascio writes.

Wells Chairman Dick Kovacevich said in a statement Thursday that the merger is "simply an incredible fit that will result in an immensely strong, stable financial services company."

Wachovia CEO Robert Steel said in a statement on Friday that the company is "delighted to stride ahead with Wells Fargo in creating a coast-to-coast financial institution -- one of the strongest financial firms in the world."