Wells Fargo makes competing deal for Wachovia

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 that Citi’s earlier and lower-priced takeover offer go forward.

The surprise announcement that Wachovia Corp. agreed to be acquired by San Francisco-based Wells Fargo & Co. 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 Inc. 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.

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 that 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, the future of Wachovia will be determined by the bank’s shareholders and regulators, which both have to approve a final deal.

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

The Federal Reserve, which has regulatory oversight of the three big banks, said it hasn’t had time to review the proposed sale of Wachovia to Wells Fargo but will work to ensure that all creditors and depositors of Wachovia are protected.

The Fed said regulators will be working with Wachovia and Wells Fargo “to achieve an outcome that protects all Wachovia creditors, including depositors – insured and uninsured – and promotes market stability.”