Citi’s share price fell on Friday by almost 6% as investors found the uncertainty of the Wachovia deal very disconcerning. Legal battles have ensued all weekend over the “exclusivity agreement” between Wachovia and Citi which was broken when Wachovia accepted Wells Fargo’s offer. Currently, the deal between Wachovia and Wells Fargo has been put on hold as Fed officials are sweeping in offer alternatives. One alternative is to break up Wachovia’s operations between the two banks. Citi getting all of the north eastern and mid atlantic branches along with the investment bank. Wells Fargo gets the asset management, brokerage, and all the southern and western branches. In addition to this idea, Citi came out saying they are suing Wachovia for $60 billion over the breach of the agreement. At the same time however, Citi is willing to come back to the table to settle out of court. This will continue to be an interesting lesson in the intricacies of business law.

So what should happen?

In my own personal opinion, Wachovia’s shareholders are best served by a takeover by Wells Fargo. Wells Fargo’s management has come out and stated that the acquisition will require a substantial multi billion dollar write down. This aggresive strategy will serve Wells Fargo well in the future. Citi on the other hand has its own issues, the bank will become too large to manage and will just assume more toxic waste stemming from Wachovia’s cursed Golden West acquisition. So when reviewing this, it seems that it is best even for Citi shareholders for Pandit and his team to let this one go. Initially, shareholder value maybe destroyed at Wells Fargo, but in the long run, led by Chairman Kovacevich will be one of the best run banks in the country. Management will have to instill much better risk discipline for Wachovia’s banking operations where poor bets have sunk a coveted giant. Word on the street is that Wachovia would have failed two days after the deal with Citi. At this point in time, we cannot worry about this, Wachovia will continue to operate as long as both potential knights stay at the round table to hammer out a deal. The future of the American banking landscape is in limbo right now as what was once the fourth largest bank in America is being taken over. Keep an eye on the news as the markets continue to head south and act in a calculated manner when investing.