Like children fighting over a prized toy, the wrangling over who gets to control Wachovia since Friday’s surprise offer by Wells Fargo has alternated between a hysterical tug-of-war and tentative truce. The latest $60bn lawsuit by Citigroup is not so much a temper tantrum as a last-ditch attempt to walk away with at least partial value. Wells, though, has mum on its side and is likely to call Citi’s bluff.

The fact that Citi even considered the compromise of keeping only part of Wachovia’s branch network when it had a signed exclusivity agreement has to do with its limited options against a cunning legislative stratagem. Tucked into the 443 pages of the $700bn bailout signed into law by President Bush was a clause that seemed designed to help a new suitor ignore the agreement Citi had signed with Wachovia. In addition to helping Wells, it serves the interests of the Federal Deposit Insurance Corporation, which could sustain significant losses in the original deal.

Citi is playing a dangerous game as it risks angering certain regulators and looking greedy as markets reel. It may be hoping to extract something of value in exchange for not delaying the deal in the courts. The 18.4 per cent drop in its stock on Friday after Wells swooped in with its superior bid speaks to what a bargain its lower offer with partial indemnification by the FDIC was. If Citi prevailed, it would reclaim the top spot in deposits and would greatly expand its meager branch network

But the stakes are even higher for Wells, which is why compromise looks unlikely. A victory would propel it into a national powerhouse from a regional one, giving it over 10,000 branches and the third largest US deposit base. Its odds look good if Citi continues to push for a deal that has Wachovia shareholders, the FDIC and irate taxpayers united against it.

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