Citi-Wells battle over Wachovia could end soon

NEW YORK/WASHINGTON (Reuters) - Wells Fargo & Co and Citigroup Inc were in talks to end their high-stakes battle over troubled Wachovia Corp on Monday, a person familiar with the situation said, as a top regulator forecast a resolution by the end of day.

The increasingly bitter dispute, which flared through the weekend, has drawn in U.S. government officials in an attempt to broker a compromise. Sheila Bair, chairman of the Federal Deposit Insurance Corp (FDIC), said she expected an agreement "that serves the public interest" to be reached Monday.

A person familiar with the situation said the various options discussed in the talks that involved the government included dividing up Wachovia between the two feuding suitors, adding that Wells Fargo would still like to buy all of Wachovia.

Citi, which announced a preliminary agreement to buy Wachovia's banking assets for $2.2 billion a week ago, was considering an offer for the entire bank, among other options, a person close to Citi said.

But the source also said Citi has no appetite to buy Wachovia assets without some sort of government guarantee -- unlike Wells Fargo, which made a $15 billion counterbid for the entire bank on Friday.

In its latest courthouse volley against Wells Fargo, Citi said it was seeking more than $60 billion in damages from Wells Fargo. Citi said Wachovia would have collapsed on September 30 without its agreement to acquire most of its assets.

DEPOSITOR ANXIETY

Citi shares was down 2.5 percent to $17.89 on worries it could lose the chance to increase its deposit base through a Wachovia takeover, while Wachovia was down 5.3 percent to $5.88 on concern over the impact of a protracted legal battle.

Shares in Wells Fargo fell 4.2 percent to $33.13 after Citi sued the San Francisco-based bank and Wachovia for breach of contract.

"A protracted legal squabble is in no one's interest," said Michael Farr, president of investment manager Farr, Miller & Washington. He said the uncertainty over Wachovia's future will likely cause depositors to withdraw their savings from the bank.

Some big investors, however, saw opportunities in the tumbling stocks. Speaking at an investor conference Monday, William Ackman, who runs New York-based Pershing Square Capital Management, said Wachovia is "an incredibly strategic asset" for either Citi or Wells Fargo.

The hedge fund manager said he has been aggressively buying shares in less complicated and "great franchises," including Wachovia, in which he owns 180 million shares.

Meanwhile in New York, U.S. District Court Judge Lewis Kaplan scheduled a hearing on Tuesday for Wachovia to argue for a restraining order to keep Citi from interfering with its deal with Wells Fargo.

Wells Fargo filed a statement with regulators, expressing its confidence it its own offer for Wachovia.

"In stark contrast to Citigroup's proposal, (this transaction) provides significant and certain value to Wachvoia shareholders," Wells Fargo said.

Wells Fargo, the seventh-largest U.S. bank by assets, has managed to remain profitable during the credit crunch, while Citi is looking to turn around its ailing business after posting about $60 billion in write-downs and losses during the last year.

(Writing by Elinor Comlay; additional reporting by Paritosh Bansal, editing by Maureen Bavdek and Jeffrey Benkoe)

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