This Wachovia episode is only getting more interesting. Before there is a resolution to this cat fight, I thought it would be worthwhile to point out the pros and cons of each outcome.
This deal is a no brainer for everyone but Citi;
- Wells Fargo is using private money to buy Wachovia, meaning no tax dollars necessary
- They will assume ALL of Wachovia’s operations, not just commercial banking
- Wachovia shareholders get $7 instead of $1 per share.
- The Citi deal requires the “good bank/bad bank” scenario, where they take only the good stuff, and leave the rest to the FDIC to take care of.
The bad part of this outcome is placed solely on Citi; they said on Monday that cutting their dividend in half was an action to shore up capital for the Wachovia deal, but now without the acquisition, that argument is out the window. Also, before Wells Fargo came in with the $15 billion deal, there wasn’t any relative basis to say that Citi’s $2 billion offer was too low. Wall Street initially applauded Citi’s move to buy Wachovia, because it signaled that they had a strong enough balance sheet to be expanding in this environment. For a brief time, they were moving into the tranche of Wells Fargo, JP Morgan, and Bank of America (As told by the stock price hitting a 3 month high).
In short, we already know that Wells Fargo was in better shape than the pack; but we cannot prove that Citi, the only bank left with anything close to their astonishing $51 billion in write downs, is improving. The Wachovia deal provides them with an opportunity to signal to Wall Street that they will make it through this mess, and they will not need another loan from Abu Dhabi, or Prince Al-Waleed.
Considering all of this, maybe we are seeing resistance from the Federal Courts (besides the legal ramifications) because this is the only viable acquisition left on the table for Citi to make, and it would be able to offset any bad news to come. 
